ECB must tighten policy if the largest to counter inflation, Weidmann says

BERLIN (Reuters) – The European Central Financial institution must tighten financial policy if it needs to counter inflationary pressures and might possibly well possibly no longer be establish aside off from doing so by the financing prices of euro zone states, ECB policymaker Jens Weidmann urged the Welt am Sonntag newspaper.

Euro zone countries have ramped up their borrowing to address the coronavirus pandemic, potentially leaving them uncovered to increased debt servicing prices if the central bank tightens policy to counter upward stress on prices.

“The ECB is no longer there to address the solvency protection of the states,” acknowledged Weidmann, whose feature as president of Germany’s Bundesbank presents him a seat on the ECB’s policymaking Governing Council.

Have to the inflation outlook upward push sustainably, the ECB would must act in keeping with its label balance aim, Weidmann acknowledged. “We must bag it definite consistently that we will tighten financial policy if the fee outlook requires it.

“We cannot then mediate into yarn the financing prices of the states,” he added.

After its July 22 policy assembly, the ECB pledged to retain hobby charges at file lows for even longer to boost unhurried inflation, and warned that the mercurial spreading Delta variant of the coronavirus posed a menace to the euro zone’s recovery.

“I attain no longer rule out higher inflation charges,” the paper quoted Weidmann as announcing. “In the end, I will roar on holding a shut inquire on the menace of an extraordinarily high inflation charge and no longer handiest on the menace of an extraordinarily low inflation charge.”

The euro zone economy grew faster than expected within the 2d quarter, pulling out of a virus-prompted recession, whereas the easing of coronavirus curbs additionally helped inflation shoot previous the ECB’s 2% target in July, hitting 2.2%.

When the ECB decides it is time to tighten policy, Weidmann expected the central bank would first finish its PEPP emergency bond take programme sooner than scaling relieve its APP take idea.

“The sequence would then be: first we finish the PEPP, then the APP is scaled relieve, and then we can elevate hobby charges,” he acknowledged.

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