ECB must toughen rules to fight inflation


German Bundesbank President Jens Weidmann attends the 29th European Banking Congress in Frankfurt at the Old Opera House in Frankfurt, Germany. REUTERS / File

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German Bundesbank President Jens Weidmann attends the 29th European Banking Congress in Frankfurt at the Old Opera House in Frankfurt, Germany. REUTERS / File

The European Central Bank must tighten monetary policy if it needs to counter inflationary pressures and cannot be deterred by the costs of financing euro area states, ECB policymaker Jens Weidmann told Welt am Sonntag newspaper .

Eurozone countries have stepped up borrowing to deal with the coronavirus pandemic, potentially leaving them exposed to increased debt-servicing costs if the central bank tightens policy to counter upward pressure on prices .

“The ECB is not here to take care of the protection of the solvency of states,” said Weidmann, whose role as president of the German Bundesbank gives him a seat on the ECB’s Governing Council.

If the inflation outlook increases sustainably, the ECB will need to act in accordance with its price stability target, Weidmann said. “We must repeat over and over again that we will tighten monetary policy if the price outlook requires it. We cannot then take into account the costs of financing governments,” he added.

After its July 22 policy meeting, the ECB pledged to keep interest rates at record highs for even longer to stimulate sluggish inflation, and warned that the Delta variant of the fast-spreading coronavirus posed a risk for the recovery of the euro zone.

“I am not ruling out higher inflation rates,” the newspaper quoted Weidmann. “In any case, I will insist on keeping a close eye on the risk of an inflation rate being too high and not just the risk of an inflation rate being too low.”

The eurozone economy grew faster than expected in the second quarter, emerging from a pandemic-induced recession, while the easing of coronavirus brakes also helped inflation to exceed the 2% target of the ECB in July, reaching 2.2%. When the ECB decides it’s time to tighten policy, Weidmann expects the central bank to end its PEPP emergency bond buying program first before scaling back its buying plan. from APP.


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