Experts Say: 2017-03-17

Ewald Nowotny - Governing council member of the European Central Bank

ECB to decide later whether to raise rates or end QE first

The European Central Bank will decide at a later time whether to raise interest rates before or after ending its bond purchase program, ECB policymaker Ewald Nowotny told a newspaper on Thursday.

The Austrian central bank governor said the ECB could hike its remuneration of bank deposits, currently below zero, before the main rates at which it lends to banks.

His comments raise questions about the ECB's own guidance, reiterated only a week ago, that rates will stay at the current level, or even fall, until well after the ECB's 2.3 trillion euros ($2.48 trillion) bond-purchase program ends.

With inflation in the euro zone rebounding, the ECB has come under pressure, particularly from Germany, to end its policy of ultra-low rates and money printing. Some policymakers raised the possibility of a rate hike before bond purchases stop at last week's meeting, but did not receive broad support.

Asked about whether the ECB would stop buying bonds or raise rates first if the economic upswing continues, Nowotny told German daily Handelsblatt: "We will decide when the time comes."

"There is the American model to end the bond purchases first. Whether this model can be applied to Europe on a like-for-like basis would need to be discussed," he added.

Nowotny said it was also not necessary to raise all interest rates at the same time and by the same amount.

"The structure of the interest rates does not always need to remain constant," Nowotny said. "The ECB could also raise the deposit rate earlier than the prime rate."

Published: 2017-03-17
Back to list

See also: