If it sounds a little simplistic to you as monetary policy, that may be because it is.
Confronted with German criticism of the asset buying stimulus program at the European Central Bank and German fears of resurgent inflation, bank president Mario Draghi advised patience today. “As the recovery will firm up, rates will go up as well,” Draghi told reporters after today’s meeting of the central bank’s board of governors. Asked about German criticism of the strategy after the bank affirmed its decision to go on buying billions in bonds in order to force down interest rates and the euro, he said, “The honest answer would be: Just be patient.”
Patience, however, may be what the German government is running out of as it faces a tough election later this year. German Finance Minister Wolfgang Schaeuble noted that his government faces political problems in explaining the bank’s policy to German voters. And he repeated a long-standing German complaint: That the bank’s loose monetary policy encourages leaders to delay the structural economic reforms the region needs.
The meeting and the after-meeting comments also revealed exactly how differently Germany and the majority at the central bank see inflation. Draghi said the rise in inflation in the EuroZone, and particularly in Germany, is transient. “There are no convincing signs yet of an upward trend in underlying inflation,” he said. EuroZone inflation almost doubled in December to 1.1%, the strongest since 2013.
The Germans don’t see the rise of inflation that way. The annual inflation rate in Germany rose to 1.7% in December.
Three-quarters of economists surveyed by Bloomberg before today’s meeting see the bank standing pat on its current bond buying program at least through September. The bank intends to buy 80 billion euros a month in government and corporate bonds through March and then reduce its rate of purchase to 60 billion euros a month from April until the end of 2017. Today’s meeting kept the bank’s main refinancing rate at 0% and the overnight deposit rate at a negative 0.4%.
As of noon New York time, the euro was down 0.12% against the U.S. dollar at $1.0617.