AMSTERDAM (Reuters) - Dutch Central Bank President Klaas Knot, who has voted against recent monetary easing by the European Central Bank, said on Thursday that the measure had reached the limit of its effectiveness.
Knot said further bond purchases by the ECB would encroach on a ban on financing government spending that is enshrined in its charter.
At a press conference in Amsterdam, he said that, while further easing was technically possible, “the question is whether the added value of doing more is worth the side effects”. “I have my doubts,” he added.
He cited a list of problems caused by quantitative easing including financial bubbles, “an unhealthy hunt for yield, rolling of problem loans, increasing wealth inequality, and an addiction to low interest rates”.
German Bundesbank President Jens Weidmann on Wednesday issued a similar warning against further ECB easing.
In a letter to parliament published on Thursday, Dutch Finance Minister Jeroen Dijsselbloem noted a further negative effect: the central bank is building up a 3.8 billion euro reserve to cover losses it expects to incur as a result of the European Central Bank’s bond purchasing program.
Separately, Knot said he did not expect the current slowdown in global growth to derail an ongoing Dutch recovery.
The Dutch government’s economic forecasting office recently lowered its GDP growth forecast for 2016 to 1.8 percent from 2.1 percent, due to the slowdown and a fall in revenues from natural gas.
But Knot said “most macro-economic lights are green” in the Netherlands. “After seven lean years of disappointing economic development, the economy is clearly growing again.”
He said the impact of China’s slowdown had been modest in the Netherlands.
More importantly, Dutch consumer spending was growing, on a solid foundation of increasing wages, lower taxes, and rebounding house prices.
As much political debate in the Netherlands focuses on how to prevent refugees from Syria reaching the country, Knot said their arrival was not necessarily negative in economic terms.
“At first, the costs of feeding and housing dominate,” he said. But depending on whether asylum seekers remain and how well they become integrated in the Dutch workforce, their arrival could be positive in the long term.
“Given the graying of the Dutch population and the demand for labor that implies, the long-term effects may be positive,” he said. “Policy aimed at fast integration is crucial for that.”
Reporting by Jochen Elegeert and Toby Sterling; Editing by Kevin Liffey