ECB’s Knot says low rate policy risks becoming counterproductive

Interest rates in the eurozone could remain historically low for years, but the European Central Bank’s (ECB) ultra-loose monetary policy risks becoming counterproductive, ECB governing council member Klaas Knot said in an interview published on Monday (23 December).

President Klaas Knot of the central bank of the Netherlands (De Nederlandsche Bank, DNB) speaks during the presentation of the annual report of the DNB in Amsterdam, the Netherlands, 29 March 2018. [Koen Van Weel/EPA]

EURACTIV with Reuters 23-12-2019 09:57 2 min. read Content type: Euractiv is part of the Trust Project

Interest rates in the eurozone could remain historically low for years, but the European Central Bank's (ECB) ultra-loose monetary policy risks becoming counterproductive, ECB governing council member Klaas Knot said in an interview published on Monday (23 December).

"I do not have a crystal ball, but I cannot rule out that the current low-interest-rate environment could last another five years", Knot told Dutch newspaper De Volkskrant.

"This worries me because temporarily low-interest rates are something quite different from persistently low-interest rates."

The Dutch central bank president said the current low rates lead to excessive risk-taking among investors, while younger generations, on the other hand, might feel forced to keep increasing their savings.

"From a macro-economic perspective that would be undesirable," Knot said.

"And it is also an example of how our low-interest rate policy may eventually shoot itself in the foot. If people start saving more in response to the low-interest rates, this will add further downward pressure on inflation."

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Knot is a frequent critic of the ECB's ultra-easy monetary policy and slammed the bank's new stimulus measures earlier this year as disproportionate.

The Dutchman has repeatedly said he is looking forward to the strategic review of ECB policy, promised by its new President Christine Lagarde, and has called for the bank to adopt a more flexible inflation target.

"The balance between positive and negative effects of the low-interest rates is shifting in the wrong direction", he told the paper.

"At a certain moment in time, we, therefore, have to reassess our monetary policy."

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