German economy ministry advisers see risks in ECB’s zero-interest rate policy

A council of academic advisers to Germany’s economy ministry has identified grave risks for the European financial system in the European Central Bank’s zero-interest rate policy, in a new report to be published on Wednesday.

The monetary policy pursued by the European Central Bank since 2014 is not commensurate with the risks, the experts wrote in the report.

They said the policy was aimed exclusively at stimulating lending and economic growth by lowering interest rates while disregarding the resulting burdens for the financial sector.

The advisers said in their report that the financial system sees interest rates of zero or less than zero as very problematic for various reasons.

This policy and the continuing growth of loans with too-low interest rates have dampened profit margins in the sector and raised the risk that necessary reforms in the sector would not be carried out, it said.

The longer the zero-interest-rate policy of the ECB continues the greater are the risks for the financial sector, the report said.

German officials have long been critical of the ECB’s ultra-low interest rate policy but pressure has grown in recent months with inflation in the euro zone rebounding.

The report said that many financial institutions, including insurance companies, were having trouble generating any profits and covering their costs as a result of the ultra-low rates. The council of academic advisers provides guidance to the economy minister but its recommendations are not binding.

Source : Reuters

 

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