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Hawkish Comments from Bundesbank President Positive for Euro

Hawkish Comments from Bundesbank President Positive for Euro

Martin Essex, MSTA,

Talking Points

- The president of the German Bundesbank, Jens Weidmann, does not see any need for an extension of the ECB asset-purchase program beyond the current end-date of December.

- But while calling for ‘a quick exit’, he argues against an abrupt end to bond buying to avoid turmoil in the markets.

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Bundesbank President Jens Weidmann, a consistent hawk who is also a member of the European Central Bank’s rate-setting Governing Council, has told a German newspaper that does not see any need for an extension of the ECB’s asset-purchase program beyond the current end date of December 2017 given the current inflation outlook.

In an interview with Börsen-Zeitung, Weidmann argued for “a quick exit” that would potentially strengthen the Euro, although his views are unlikely to sway more dovish members of the Governing Council or its President Mario Draghi. Moreover, he spoke out against an abrupt end to bond buying to avoid turmoil in the markets.

Given the ECB’s June inflation forecast “I do not think there is any immediate need for further action in the coming year, especially not to continue the purchase program,” Weidmann said. There is agreement that the purchases “will not be finished tomorrow” and that what is needed is an “orderly exit”, he added, while making it clear that he would “make the exit quickly”.

Weidmann stressed that a discussion on whether to cut back, or “taper”, the ECB’s monetary stimulus program for the Euro-Zone economy takes place at every monetary policy meeting. However, it is widely believed that the ECB will decide on tapering at one of its two next meetings in September and October so that it can begin early in the New Year.

The Bundesbank President expressed sympathy for a predefined exit plan, saying “a clear plan has advantages in communicating with the markets and the public at the exit” and said bond purchases are gradually reaching their boundaries. “A change in the parameters, which I think is partly easy to discuss in some cases, would lead to considerable negative consequences,” Weidmann said.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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