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“The ECB is well-advised to keep all exit options open”

Statement of September 7, 2017

Marcel Fratzscher, president of the German Institute for Economic Research (DIW Berlin), comments the latest ECB council meeting as follows:

BlockquoteThe European Central Bank (ECB) stays true to its cautious approach of a gradual exit from its expansionary monetary policy stance. It is wise for the ECB not to commit to a specific timetable for its next policy steps. The risks to the euro area and the global economy are still substantial - geopolitical conflicts and protectionism are on the rise again. The euro area's banking system is also still facing many problems. At 1.5 percent, the projected inflation rate for 2019 would allow the ECB to just marginally fufill its price stability mandate. The ECB has to keep its exit options open in order to be able to react flexibly. The toughest challenge will be for the ECB to contain market volatility, which will arise from the normalization of its policy stance. I expect a fairly quick reduction of ECB asset purchases in 2018, together with a revision of the negative deposit rate. I don't expect policy rates to be hiked before 2019.