The European Central Bank’s (ECB) ultra-easy monetary policy might hurt the economy in the long term, according to ECB board member Yves Mersch. The official said on Monday that the central bank might be causing asset bubbles that will lead to future crises.
The ECB has maintained the interest rates in negative territory for the last six years to boost economic growth. However, more and more experts believe that low rates could result in financial instability. The list of economists who speak against an ultra-low policy includes ECB policymakers.
Mersch said:
“Vigilance is
particularly warranted in the light of some signs that monetary policy is
encouraging increased risk-taking and contributing to elevated asset price inflation
and income inequality.”
He added that asset prices, especially for properties, are
stretched, and this might eventually end up with a major crisis.
Mersch admitted that tightening the policy would prevent
inflation from reaching the ECB’s target, but this the cost to prevent an even
worse situation. The ECB official said that the bank should take into account
the risks on both sides.
The central bank repeatedly hinted that price stability is
the main priority, with the inflation target being its paramount objective. It suggests
that asset bubbles should be fixed by other institutions.