FRANKFURT (Reuters) - The European Central Bank will take ‘several’ years to normalize policy and wrapping up a 2.6 trillion asset purchase scheme next month is only the first step, Bundesbank President Jens Weidmann said on Tuesday.
The ECB plans to end its purchases at the close of the year but said it would keep rates steady at record lows at least through next summer, suggesting that it would tighten policy only by the smallest of increments.
“The anticipated end of net asset purchases marks only the beginning of the exit from the ultra-loose monetary policy,” Weidmann, who sits on the ECB’s rate-setting Governing Council said. “It is the first step on a path of normalization which will last several years.”
Still, Weidmann, a policy hawk, argued that the bank should continue to tighten policy as record low rates might destabilize the banking system.
“In a downturn, policymakers must respond vigorously; but in an upswing, when risks in the financial sector can build up, they must also be able to tighten the reins again as needed,” he said.
Reporting by Balazs Koranyi; Editing by Francesco Canepa