"The ECB is Seeming Increasingly Dogmatic"

As expected, the European Central Bank (ECB) today announced that it would not be adjusting its base rates, nor would it be making any changes to its outlook on interest rate policy. This means that banks and savers will have to live with the ECB’s negative deposit rate of minus 0.4 per cent for quite a while longer. The ECB also could not bring itself to give any indication that it would soon end its current asset purchase programme under which the bank has been purchasing securities to the sum of 60 billion euros a month. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW) in Mannheim, offers his view on the ECB’s actions.

“The ECB’s refusal to prepare for a gradual phasing-out of its securities purchase programme, even if only in the form of a public statement, is coming across as increasingly dogmatic. There has been a tangible improvement in credit supply for private companies while economic recovery in the eurozone continues to gain momentum and the core inflation rate is rising. In light of these developments, the extremely aggressive combination of negative interest rates and security purchases is no longer a rational monetary policy. And then there’s the increased rate of inflation in the eurozone expected in 2018 due to the economic boom in Germany to factor in.

By remaining silent on its plans to phase out bond purchasing or put an end to negative interest rates, the ECB is increasingly running the risk of no longer being able to prepare the markets in good time for the much needed change in monetary policy coming next year. At its next meeting on 7 September, the ECB Governing Council must not waste another opportunity to turn a new page in terms of how it communicates its policy.”

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail friedrich.heinemann@zew.de