FRANKFURT (Reuters) - Monetary policy is not the right instrument to address financial imbalances in the euro zone and macroprudential tools must be used to tackle local issues, European Central Bank President Mario Draghi said on Thursday.
“Financial and business cycles can potentially become de-synchronised, meaning that financial imbalances can grow in an environment characterised by relatively muted inflation,” Draghi said in his capacity as the head of the European Systemic Risk Board.
“In such an environment, the use of monetary policy is not the right instrument to address financial imbalances, and may lead to substantial deviations of aggregate output and inflation from their desirable levels,” he added.
With ECB rates in negative territory, property bubbles have started to develops in some parts of Europe, particularly around big Western European cities.
(This version of the story was corrected to remove reference to government in headline and lead)
Reporting by Balazs Koranyi; Editing by Francesco Canepa