A shift by the European Central Bank from its current accommodative monetary policy is far off amid concern over economic growth, ECB council member Klaas Knot said, echoing comments by policy makers yesterday.
“Hinting at an exit, at least in regards with the ECB policy, is still a very long time away from us,” Knot, who is also president of the Dutch central bank, told lawmakers in The Hague today. He was referring to the current state of the euro bloc’s economy and low inflation. He also said that recovery in the euro zone is still vulnerable. “We are more concerned about the downward risks,” he said.
ECB President Mario Draghi said yesterday in a speech at the French National Assembly in Paris that policy makers will maintain a loose monetary stance for as long as is needed. Financial markets tumbled in the past week amid concern stimulus will be withdrawn after U.S. Federal Reserve Chairman Ben S. Bernanke said last week that policy makers may start slowing their pace of bond buying.
“The financial markets are pretty calm right now,” Knot said. “There are no chaotic movements in the bond spreads or the funding costs for banks.” Interest rates are still “reasonably favourable.”
Recovery of market trust has been stagnating in recent months, Knot said. “If we want to bring it back, more structural reforms are required.” A banking union is one of the elements to restore this trust, he said. Not only the supervision must be taken care of, also the resolution, the asset quality review and the backstops.
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