Asset prices not the job of the ECB
Overvalued asset prices are not a major problem for the eurozone, said European Central Bank Governing Council member Nicholas Garganas, adding that he opposes using monetary policy to prick asset bubbles. Sharp gains in housing prices are restricted to a few eurozone countries, such as France and Spain, he told Reuters in an interview on Tuesday for release yesterday. «This is not much of a big problem. We do not see big asset price increases in a number of countries,» he said. The ECB in its monetary policy statement this year has noted rising house prices as a factor it is watching. Other ECB policymakers have urged mortgage lenders and borrowers to be prudent and not overstretch when interest rates are so low. The attention to asset prices had raised speculation among some ECB watchers that the central bank might use this as one reason to tighten monetary policy this year. The ECB has held rates at 2 percent for almost two years. But in the Reuters interview, Garganas said he did not favor using monetary policy to tackle asset price gains. The ECB targets consumer prices, not assets, he said. «Firstly, it is difficult to judge ex ante if asset prices actually constitute a bubble and are not driven by fundamentals. A monetary policy that is tied to asset prices could entail a deviation from the objective of price stability in the long run and the short term. «Then there is a question of moral hazard. If monetary policy targeted asset prices, markets would not take care to price assets according to their fundamental value. They would know that the central bank would step in, creating moral hazard.» «We also can see cases where monetary policy has tried and failed to deal with bubbles,» he said.
