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ECB's Weber warns against too much monetary-policy stimulus – I Ind

04 November 2011

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European Central Bank council member Axel Weber said the bank won't spend more than €60bn on covered bonds and cautioned against too much monetary-policy stimulus.

ECB measures to shore up the economy include covered bond purchases "up to a maximum amount of €60bn", Weber, who heads Germany's Bundesbank, said in a speech in London yesterday.

The comment comes just hours after fellow council member Marko Kranjec said the ECB is "likely" to increase its asset- purchase programme and may also broaden its scope to include corporate bonds and commercial paper.

The ECB's 22-member Governing Council is split over how best to stem the worst recession since World War II.

While Weber has opposed asset purchases and wants the ECB to signal an end to interest-rate cuts, other policy makers have argued the bank may need to do more to counter the risk of deflation.

Weber said inflation may make a "rapid and powerful comeback" if the economy recovers faster than expected and policy makers don't tighten policy as quickly as it was loosened.

"Monetary policy has created an enormous expansionary stimulus," he said.

"While the stimulus is currently warranted, we have to keep in mind that it has to be reduced or even inverted very quickly as soon as the overall situation improves."

ECB President Jean-Claude Trichet last week cut the benchmark interest rate to a record-low of 1pc and said that is not necessarily its lowest level.

He also announced the ECB will buy €60bn of covered bonds, with details of the plan to be unveiled next month.

(Bloomberg)