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ECB shouldn't wait too long to normalise policy, says Bundesbank president

2018-10-09T092343Z_932021766_RC1BB0D0E380_RTRMADP_3_IMF-WORLDBANK-GERMANY-WEIDMANN.JPG
The European Central Bank (ECB) shouldn't waste any time in normalising monetary policy if the economic situation in the euro area allows for it, according to Bundesbank President Jens Weidmann.

[FRANKFURT] The European Central Bank (ECB) shouldn't waste any time in normalising monetary policy if the economic situation in the euro area allows for it, according to Bundesbank President Jens Weidmann.

Speaking in Frankfurt on Monday, Mr Weidmann warned that maintaining very loose monetary conditions carries risks and could lead to excesses in the financial system. The end of net asset purchases - which economists expect to be announced at the ECB's Dec 13 meeting - is only the first step on a long road of paring back stimulus, he said.

"It's clear that the next steps in normalisation will depend on how the data develops," Mr Weidmann said. "But I am convinced that we shouldn't lose time unnecessarily."

The Bundesbank president's comments are expected to be his last before policymakers go into a quiet period ahead of the decision next week. They will need to confront growing evidence that the euro area economy is losing momentum after the weakest performance in four years in the third quarter.

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While the ECB is expected to cap buying at 2.6 trillion euros (S$4 trillion) this month, Mr Weidmann said the stimulus will remain plentiful because policymakers plan to reinvest proceeds from maturing debt for as long as necessary. Interest rates will stay at record lows at least through the summer of next year.

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