FRANKFURT (MNI) – Given the environment of long-term deleveraging
and resulting weak growth, it is appropriate that short-term interest
rates be kept relatively low, European Central Bank Governing Council
member Klaas Knot said Wednesday.
According to a text of his remarks provided by the Dutch National
Bank, which he heads, Knot told a seminar on pensions that there were
various reasons why risk-free yields might not rise again in the short
run.
One reason why low risk-free yields could continue “for a long
time” has to do with the fact that “the crisis has made it clear that we
all have too many debts built up,” he said.
“This applies to banks, to families and also to various
governments,” Knot continued. “These debts in the coming years will have
to be phased out. And this inhibits economic growth…The deleveraging
could therefore lead to a prolonged weak economic outlook. In itself,
this is a situation where relatively low short-term interest rates are
appropriate.”
It is unwarranted to accuse the ECB of being the reason for low
risk-free yields, the Dutch central bank chief said. Although short-term
rates influence long-term ones, “the long-term rate is mainly determined
by other factors, such as expected economic growth,” he added.
“Second, monetary policy has a clear and unchanging purpose that is
in the interest of us all, and that is price stability,” Knot continued.
“Stable prices make it easy for consumers to see if, for example, peanut
butter is more expensive compared to chocolate spread. Stable prices
reduce the costs of inflation and thereby stimulate investment. Stable
prices also prevent assets, e.g. pension capital, from being eroded by
inflation.”
“The interest rate decisions of the ECB are primarily guided by one
goal: to keep prices stable,” he said.
–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com
[TOPICS: M$X$$$,M$$EC$,MT$$$$,MGX$$$,M$$CR$]
