Monetary policy

In their joint forecast, the chief economists of German private banks firmly oppose recommendations for combatting weak world economic growth with higher central bank inflation targets or negative interest rates and by abolishing cash.
The continuing weakness of global economic growth was doubtless giving cause for concern. But Kemmer warned against seemingly easy answers: “Solutions which focus solely on excessively high savings or a lack of demand will not boost world economic growth.” At least equally important were causes on the supply side. “Even if it will be a hard pill to swallow, credible and sustainable structural reform – especially in Europe – is the only thing that can help,” Kemmer continued.
In the eurozone, too, there were increasing signs that the extremely expansive monetary policy which the European Central Bank (ECB) has been pursuing for a long time is now reaching the limits of what it can achieve. In an environment of historically low interest rates, structural growth problems and a private sector that remained heavily indebted, additional monetary stimulus had virtually nothing more to deliver.
On the contrary, Kemmer stressed that “the attempt to use monetary policy crisis measures to stimulate lending and inflation has ended up imposing a ‘special tax’ on healthy and liquid banks.” Given the economic recovery in the euro area and an inflation rate which is gradually beginning to pick up again, the chief economists of the German private banks recommend the ECB to keep a steady hand at the monetary policy tiller. It should refrain from taking any further expansive measures. “A debate on how the ECB’s purchase programme can gradually be brought to an end is overdue,” said Kemmer. www.bdb.de
Dr. Kerstin Altendorf, Bundesverband deutscher Banken e.V.