ECB policy reaching limits, need to think about exit strategy: Dijsselbloem

[WASHINGTON] The European Central Bank's expansionary monetary policy is reaching its limits and the eurozone should prepare an exit strategy to avoid negative side effects, Jeroen Dijsselbloem, the chairman of eurozone finance ministers, said on Thursday.

"Expansionary monetary policy... supports the economy in the short run, but the limitations are imminent and negative side effects are becoming stronger," Mr Dijsselbloem said in a speech at the Peterson Institute in Washington.

"Over the past few years monetary policy has been highly accommodative in order to bring inflation towards its target level. The current low interest rate environment acts as a tailwind for our economy, it supports the economy in the short run, but the effect is short-lived, it simply cannot foster a sustainable recovery if underlying structural problems are not addressed," he said.

He added that a sensible strategy to phase out this policy has to be designed.

"We have to face the fact that expansionary monetary policy can have negative side effects like potential financial instability," Mr Dijsselbloem said "If bubbles are created, if they occur, monetary tailwinds can turn into a windstorm and lead to boom-bust cycles. So let's be well aware of the limits of what monetary policy can do," he said.

REUTERS