ECB Asked to Start QE Exit Strategy Talks

The European Central Bank should start thinking about how it wants to return to normal monetary policy and when it wants to wind down it bond purchases, governing council member Sabine Lautenschlaeger said in remarks published on Saturday.

“The expansionary monetary policy has both advantages and side effects. As time passes, the positive effects get weaker and the risks increase,” she told the Mannheimer Morgen newspaper, Reuters reported.

“So it’s important to prepare for the exit in good time. What’s crucial in that context is a stable trend in the rate of inflation towards our objective of just under 2%. It’s not quite there yet.”

She acknowledged that unwinding the ECB’s expansive policy would be a long process, saying that the governing council should start addressing the question of when it wants to start winding down its bond purchases. The right timing for the ECB to unwind expansionary monetary policy is “not quite there yet”, she said.

Consumer prices rose at an annual rate of only 1.3% in the year to June, although a slight pick-up in German inflation to 1.7% in July suggests some inflationary pressure may be building. The reading for the eurozone as a whole will be announced on Monday.

Investors are keenly awaiting signs the ECB will start to rein in its monthly asset purchases. The central bank is currently buying €60 billion ($70.5 billion) of bonds per month on average, but there are currently no plans in place beyond the end of December.

ECB president Mario Draghi said last week a decision on asset purchases will be unveiled in the “autumn”, but he declined to offer any clarification on whether that would mean an announcement in September or October.

Meanwhile, 10 years after the first rumblings of the global financial crisis, Lautenschlaeger criticized efforts to roll back regulation, which have emanated in particular from the administration of US President Donald Trump.

Pointing to the highly interconnected global banking industry, Lautenschlaeger said global rules are necessary to protect from regulatory arbitrage around the world.

 “I don’t believe in returning now to deregulation or to purely national rules,” she said. “That would be a big mistake.”

She added: “We need globally consistent rules for the activities of large banks, of banks which are important for the financial system. The crisis should have taught us that.”