According to Peter Praet, chief economist at the European Central Bank, the risks associated with the ECB’s ultra-loose monetary policy have to be closely watched.
Praet’s warning has been taken as a sign that the ECB is moving away from its policy of massive bond purchases and ultra-low interest rates. It is expected that the bank’s stimulus package would be gradually wound down in the near future.
This would be a victory for the ECB’s representatives from Germany and other leading eurozone countries, who have long been dissatisfied with high property and bond prices.
By buying bonds worth 2.6 trillion euros during nearly four years, the ECB has reduced borrowing costs to stimulate lending in the euro area. As a result, it expanded at its fastest pace in the past nine years in July.
But economic growth has slowed down this year, with lending growth stabilizing as well.
According to the central bank, it expects to stop buying bonds at the end of 2018 but would keep interest rates at the same record low level until the summer 2019.
Investors anticipate the first rate hike by the ECB in October or December next year.
