#ECB must not delay rolling back stimulus: Weidmann

The European Central Bank should roll back its stimulus program now that inflation is consistent with its target, Bundesbank President Jens Weidmann (pictured) has said, warning against a delay in normalization after years of central bank support, writes Michael Nienaber.

The ECB agreed in June to end massive bond purchases by the close of the year, but Weidmann, an outspoken critic of the central bank’s easy-money policy, said this should be just the first step in a process that might take years.

Weidmann was in the spotlight this week after the newspaper Handelsblatt said Chancellor Angela Merkel was giving up on promoting him to succeed ECB chief Mario Draghi next year. She was focusing now on securing the European Commission presidency for a German candidate, the newspaper said.

Weidmann made no reference to the ECB succession in his remarks.

Draghi has also guided markets for an interest rate hike only after next summer, a timeline some hawks consider too soft given that inflation has rebounded, the bloc is into its sixth year of expansion and employment is at record highs.

Weighing on the debate whether inflation is already high enough, Weidmann said that the ECB’s projection of 1.7% for 2020 is “broadly consistent” with the bank’s mandate of close to but below 2%, a view contrary to Draghi’s take.

Inflation rose to 2.1% last month, mostly on higher energy prices. It is likely to fall back below 2 percent in the coming months as domestic price pressures remain muted.

“However, they are likely to intensify as aggregate capacity utilization increases,” Weidmann said about domestic prices. “They will thus counteract waning impetus from other components of the inflation rate, such as energy prices.”

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