The European Central Bank should cut its inflation target and must rethink its p...
WASHINGTON - The European Central Bank should cut its inflation target and must rethink its policy approach as negative interest rates could endanger the bloc’s financial system, Austrian central bank Governor Robert Holzmann said on Friday.
“In an environment of highly fixed inflation expectations, it becomes too expensive and difficult to reach the target, you need too much liquidity to do it,” Holzmann told Reuters in an interview during the IMF and World Bank fall meetings in Washington. Holzmann, one of the newest members of the ECB’s policy panel, said negative interest rates are not sustainable over the long term and some of financial sector player simply can’t adjust.
Holzmann also noted that ultra-low pension returns endanger European efforts to supplement a public pension system with a private pillar, another reason for the ECB to change its approach to negative rates. While many of his fellow policymakers see incoming data as weak and supporting the ECB’s decision to provide more stimulus, Holzmann said that there is also good news on the horizon.
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