Saturday 28 January 2017

Should the European Central Bank continue its monetary policy?

Previously, the chairman of the European Central Bank, Mario Draghi, stated that the European Central Bank would continue its asset purchasing programme; however, is it still right to continue such expansionary monetary policy?
Jens Weidmann, the Bundesbank president, said "the economic outlook at the beginning of the year is quite positive and the inflation rate is gradually approaching the ECB's definition of price stability. If this price development is sustainable, the requirements for the withdrawal from the loose monetary policy are met". In the Eurozone, the inflation rates in many countries are reported to increase last quarter; moreover, the world inflation rate is expected to continue to increase this year, as the inflationary factors remain and the costs of trading in the future probably increase in the future could add more inflationary pressure. The role of a central bank is to keep a sustainable economic growth including a sustainable inflation rate. Recently many European countries are experiencing increasing inflationary pressure, which is a positive sign given the previous inflation rates were generally close to zero. In addition, the European countries have relatively high economic growth rates, including Greece. Although Greece is still facing its debt problem, it has a great improvement on its government budget and it is reported to have a high economic growth.
Solely on the inflation issue, the general picture of the Eurozone gives a sustainable inflation and economic growth on the whole and the expansionary moentary policy seems unnecessary; however, looking into some specific countries, public debt problems remain and their economies are still needing support from other member countries, IMF and the ECB, this would make the ECB continuing its asset purchasing programme seem reasonable and necessary.

No comments:

Post a Comment