Dutch central bank calls on ECB to suspend economic stimulus package

The European Central Bank should suspend its economic stimulus package at the time of the crisis, said the governor of the Dutch central bank, stressing that concerns about disappointing economic growth have spread to the most hawkish circles in the eurozone.

Klaas Knot, a candidate for the replacement of Mario Draghi as President of the ECB, told the Financial Times that the central bank needed to badess how bad the economy was going before pursuing its plans for normalizing monetary policy.

"At this moment, the wait-and-see attitude is probably the optimal attitude," Mr Knot said during an interview in Amsterdam. "We are currently going through a few quarters where growth has fallen below potential, which means that rising inflationary pressures will also cause slight delays."

Mr Knot's change of heart – who said last year that the ECB should debate the opportune moment to raise interest rates – means that it has aligned itself with M Draghi and the majority of the Governing Board of the ECB. It shows the sharp deterioration of sentiment in the euro zone.

Knot's change of heart comes as central banks around the world are reluctant to raise borrowing costs due to a deteriorating business climate and rising political uncertainty. Last week, the Bank of England reduced its growth forecast to its lowest level in ten years and ruled out any rate hike, following the US Federal Reserve, which shocked markets last month. abandoning his plans to raise rates.

We will have to be patient and modest about when exactly we can expect inflation to converge towards our mid-term goal.

The ECB has not changed its position yet. But the 25-member Board of Governors, including Knot, downgraded its outlook – saying the economic risks were "going down."

The board said it hoped that borrowing costs would remain unchanged "at least during the summer" this year, but markets are now waiting for the break to last until the end of the year. In 2020 – an opinion that Mr Knot does not reject.

The Dutch central banker said that it was not necessary to raise rates as long as nothing indicated that inflation, which had been too low in the euro zone for years, was approached the goal slightly below 2%. The economic slowdown should now limit inflationary pressures.

"We will have to be patient and, in my opinion, modest as to when exactly we can expect inflation to converge towards our medium-term goal. [of 2 per cent]Said Mr. Knot.

The central banker would not go so far as to advocate additional measures to support growth – saying "we are not there yet" – but said that in the past the ECB had been " innovative "when needed.

Mr Knot, 51, is an outside bet to replace Mr Draghi when the Italian's term ends at the end of October. The Dutchman has recently become vice president of the Basel-based Financial Stability Board and will lead the committee as soon as Randal Quarles of the Fed withdraws in 2021.

In the past, Mr Knot has opposed some of the ECB's most aggressive measures, including its EUR 2.6 million quantitative easing program, which raises doubts about its ability to take up the post of high level.

"If I were asked to be available, I would then formulate an answer," said Mr Knot, wishing to succeed Mr Draghi.

Jens Weidmann, President of the Bundesbank, François Villeroy de Galhau, Director of the Bank of France, Benoît Cœuré, Member of the ECB Board of Directors, Ardo Hansson, Estonian chief banker, Olli Rehn, Finnish, and his predecessor, Erkki Liikanen.

Although he is considered a hawk, Mr. Knot would like to point out that he did not adopt what Mr. Draghi termed the "no to all" approach to M Weidmann.

Mr Knot said that he supported the ECB's exceptional monetary operations program – the result of Mr Draghi's pledge to do "all that is needed" to save the economy. # 39; euro. He also supported the bank's adoption of negative interest rates and cheap central bank liquidity auctions for commercial banks.

He acknowledged that the purchase of bonds, known as quantitative easing, had clearly contributed to the recovery: "This has eased financial conditions and reduced financial fragmentation."

However, he stated that QE badistance to increase inflation against the bank's target was questionable and that side-effects could "lead to zombification, both in the banking sector and in the banking sector. the business sector ".

Like Germany, the Netherlands has experienced strong growth and unprecedented unemployment, but its dependence on exports makes it vulnerable to weaker global demand. . Last week, the European Commission said growth would slow to 1.7% in 2019 from 2.5% last year.

"The risks are related to the external environment, especially the trade problems and slowing growth in China," he said, adding that the UK's decision to leave the EU was "absolutely detrimental" in the Netherlands.

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Monday, February 11, 2019

"Impose trade barriers in an area where previously there was [none] will result in lower productivity growth on both sides of the barrier, "he said. "Short-term disruptions should be manageable, with decent negotiation and a decent arrangement. But in the long run, this is clearly not a positive factor for our economies. "

However, Knot said the talks on a recession in the eurozone were "clearly premature".

The weaknesses in Italy were due to the "internal policy choices" made by the anti-establishment government of Rome, determined to increase spending to increase social badistance. Elsewhere, the labor market has "improved significantly," he said.

"We are starting to see wage growth. Oil prices have dropped, "he said. "The current situation could last a few quarters, but I remain positive. . . that, thereafter, growth will return to levels slightly above potential. "