The European Central Bank wants to take the gas pedal from the current interest rate policy slowly, according to Council Member Ewald Nowotny
Instead, the focus is on cautious normalization, said the governor of the Austrian National Bank (OeNB) on Wednesday at a conference in Vienna.
The ECB’s inflation target of just under two percent should not be interpreted as a point target, said Nowotny further ahead of financial managers. Unlike the Federal Reserve, the ECB has defined price stability as the only goal.
In the banking sector, a rapid increase in interest rates would also cause problems. Therefore it is important to see things with “caution and detachment”. “Even the central banks know the problem of the long braking distance,” said Nowotny. Therefore, it is important to drive with “safety distance” in order to react quickly to emerging hazards.
In principle, the interest rate policy can not be determined arbitrarily by the central banks, but is linked to the development of inflation. “It would be completely wrong economically to use low interest rates with high inflation or high interest rates with low inflation,” said Nowotny.
There is currently a period of very low interest rates and low inflation, said Nowotny. It is being discussed whether this might be a long-term structural development and that comparatively low interest rates can be expected in the long term. The reasons for this would lie in the opening up of the global economy and massive additional providers of savings deposits. It may also be that the demand for capital has fallen or that it has to do with the increasing uneven distribution of income or the distribution of demographic development. “There are no clear answers,” said Nowotny.
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