ECB Vice President Luis de Guindos warned that the “collateral effects” of the ultra-loose monetary policy are “increasingly significant”. Hence, monetary policy “can’t be the only response to the economic slowdown” in the Eurozone. He added, “monetary policy can provide liquidity in the case of the risk of Brexit or trade wars, but it’s not the solution to these issues, which are the factors behind the slowdown”. He emphasized, “we can alleviate the situation but we can’t resolve it.”
De Guindos also added that “I wouldn’t say that monetary policy has in any way reached its limits, but I would say that the negative impact on financial stability is increasingly evident, which means it needs to be complemented with fiscal policy.” the advantage of negative rates is that “it has boosted investment, consumption and that’s behind the recovery”. But on the negative side, some real estate markets in Europe are of overly buoyant valuations of assets, and banks’ earnings have also taken a hit.
Separately, Governing Council member Ignazio Visco said “Eurozone inflation remains at an excessively low level and the risk of a de-anchoring of medium-long term expectations is appearing.” He added monetary policy will remain expansionary to sustain demand.
