CESifo GmbH Münchener Gesellschaft zur F&ou : Ifo President Fuest Regrets ECB Decision

Jan 19, 2017

Ifo President Clemens Fuest regrets the European Central Bank's decision not to reduce its monthly government bond purchases to below 60 billion euros as of April.

In Fuest's view, 'It would have been better to scale back purchases by ten billion euros each month as of April. Estimates by the Ifo Institute suggest that inflation in the Eurozone will rise to an annual rate of 1.5 percent in 2017. This is close to the ECB's target of just below two percent and weakens its arguments in defence of bond purchases.' According to Fuest, the increase is due to a renewed rise in oil prices and fading downward pressure on inflation due to previous price declines. 'Arguing that the inflation rate increase may be temporary does not justify continuing bond purchases. Interest rates are still very low. The ECB still has time to react if it really does look like the inflation rate will fall again in 2018,' Fuest added.