Klaas Knot: low rate policy risks becoming counterproductive
AMSTERDAM- On Monday, ECB governing council member Klaas Knot said that Euro zone interest rates may remain historically low for years, but the European Central Bank (ECB) maintaining the ultra-loose monetary policy risks may prove counterproductive.
He goes on to say that he does not possess a crystal ball but he cannot rule out that the present low interest rate environment may continue for another five years.
He’s worried as the temporarily low interest rates are very different from persistently low interest rates.
Dutch central bank president believes that the current low interest rates result in excessive investor risktaking and on the other hand, younger generations may feel pressure to keep increasing their savings.
Knot often criticises the ECB’s ultra-easy monetary policy and this move, according to him is undesirable from a macro-economic perspective. The policy will go on to shoot itself in the foot as people, in response to low interest rates, may start saving more adding downward pressure on inflation.
Knot is anticipating a strategic review of the ECB policy as promised by its President Christine Lagarde. He has called the bank to adopt a more flexible inflation target.
“The balance between positive and negative effects of the low interest rates is shifting in the wrong direction. At a certain moment in time we therefore have to reassess our monetary policy,” he told the paper.
Photos syndicated via Reuters)
This story has been edited by BH staff and is published from a syndicated field.