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27 Feb 2014
Weidman: "Monetary policy is a sledgehammer rather than a scalpel"
FXStreet (London) - Speaking at the Bundesbank Symposium on Financial Stability and the Role of Central Banks in Frankfurt today, Deutsche Bundesbank president Jens Weidmann said that: “When it comes to handling financial stability risks, monetary policy is a sledgehammer rather than a scalpel. So, the latter should be the preferred choice of tool, and getting it ready for use has to be a political top priority.”
The comments from Weidman comes amid mounting speculation that the European Central Bank is considering negative deposit rates as a means to stimulate credit activity in the Eurozone, a move already played down by Austria National Bank president and ECB governing council member Ewald Nowotny yesterday.
Speaking at the symposium, Weidman stated that: “In my view, even if monetary policy instruments were an efficient tool to influence financial stability – a premise which I would still doubt – an important argument against the comprehensive involvement of monetary policy in financial stability lies in the risk of losing credibility with regard to the pursuit of price stability.”
Adding: The credibility of monetary policy depends both on the clarity of its objectives and on transparency with regard to its limitations. Adopting financial stability as an additional monetary policy objective on a par with price stability would risk raising unrealistic expectations about the effectiveness of the monetary policy instruments. It could create trade-offs which would undermine the primacy of the price stability objective, reflected for instance in the form of an inflationary bias.”
The comments from Weidman comes amid mounting speculation that the European Central Bank is considering negative deposit rates as a means to stimulate credit activity in the Eurozone, a move already played down by Austria National Bank president and ECB governing council member Ewald Nowotny yesterday.
Speaking at the symposium, Weidman stated that: “In my view, even if monetary policy instruments were an efficient tool to influence financial stability – a premise which I would still doubt – an important argument against the comprehensive involvement of monetary policy in financial stability lies in the risk of losing credibility with regard to the pursuit of price stability.”
Adding: The credibility of monetary policy depends both on the clarity of its objectives and on transparency with regard to its limitations. Adopting financial stability as an additional monetary policy objective on a par with price stability would risk raising unrealistic expectations about the effectiveness of the monetary policy instruments. It could create trade-offs which would undermine the primacy of the price stability objective, reflected for instance in the form of an inflationary bias.”