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Normalisation of the ECB’s monetary policy is timely

Peter Bofinger, (2019), “Normalisation of the ECB’s monetary policy is timely”, The Progressive Post, 11 January

If everything goes according to plan, the European Central Bank (ECB) will end its “extended asset purchase programme” at the end of the year. This marks the end of a three-year phase in which public sector and private bonds totaling 2 trillion euros were bought. The high level of these unconventional measures naturally raises the question of the implications of the announced exit for the financial system and the real economy of the euro area.
Based on the mandate of the ECB, which is to ensure price stability in the euro area, the current forecasts speak for a normalisation of monetary policy. For the years 2019 and 2020 and beyond, it is widely expected that the inflation rate in the ECB’s target area will be close to its target of “below, but close to 2%”. At the same time, the euro area has been able to return to a stable course of growth following the recession in 2012 and 2013. In this sense, there is no longer an obvious need for exceptional monetary policy measures.
Nevertheless, the transition to a “normal” monetary policy is not without its risks, in particular for the development of long-term interest rates of the euro area Member States. In principle, one should expect the transition to be comparatively smooth. Since the ECB has long announced this step and the financial markets are determined by forward-looking expectations, it should already be priced into the bond prices.

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