ECONOMY

Bundesbank says ECB expansive policy is ‘currently justified’

The European Central Bank’s accommodative policy stance is appropriate considering the weak economy and inflation expectations, the Bundesbank said.

“Given expected low inflation rates over the medium term and weak economic developments, an expansive bias in monetary policy in the euro area is currently justified,” Germany’s central bank said in its monthly report today. “At the same time, it is essential to keep an eye on the medium- and long- term risks of very low interest rates with regard to a forward- looking stabilization policy.”

The European Central Bank this month lowered its benchmark rate to a record low of 0.25 percent and ECB President Mario Draghi warned the 17-nation economy may face a prolonged period of low inflation. The rate cut was opposed by about one quarter of the 23-member Governing Council, among them Bundesbank head Jens Weidmann and ECB Executive Board member Joerg Asmussen, according to two people familiar with the talks.

“The accommodative monetary policy stance will further support the gradual recovery of economic activity which has been observed since this spring,” the Bundesbank said today.

Economic growth in the 17-nation currency bloc slowed to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June, the European Union’s statistics office in Luxembourg said on Nov. 14. Gross domestic product in Germany, the region’s largest economy, expanded 0.3 percent, down from 0.7 percent in the second quarter.

“Germany’s economy is on a solid growth path,” the Bundesbank said. “The cyclical underlying trend points to the German economy growing according to its potential after having overcome a period of weakness three quarters ago.”

[Bloomberg]