ECB’s Weidmann: Will Have to Tighten Policy When Needed to Maintain Price Stability

2 June 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank will have to eventually withdraw monetary accommodation when warranted by the inflation outlook, ECB Governing Council member and German Bundesbank President Jens Weidmann said Wednesday.

In a speech at the Green Swan 2021 Global Virtual Conference, a copy of which the Bundesbank made available, Weidmann said that ‘[t]he lines of responsibility separating central banks and politicians should not be blurred.’

Accommodative monetary policy encourages investment, but policy will need tightening when the ECB’s price stability objective calls for it, he said. ‘This will include scaling back our asset purchases or portfolios for monetary policy purposes, whereas the political need to promote the transition to net-zero will not simply vanish.’

‘However, climate change and climate action can affect inflation, output and interest rates’, he continued. ‘Thus, central banks have to understand the implications for price stability and monetary policy and have to expand their analytical toolkit accordingly.’