FRANKFURT: Monetary policy is not the source of economic growth, which lies in the hands of politicians and governments, the European Central Bank’s chief economist Peter Praet said yesterday.
“I will be clear on the limits to monetary policy actions,” Praet told a financial congress.
“The ultimate source of growth and employment is not monetary accommodation. It is a competitive environment, a highly skilled workforce and a sound financial system,” Praet said, warning governments not to shirk their responsibility for solving the eurozone’s economic problems.
Earlier this month, the ECB cut its key interest rate by a quarter of a percentage point to a new all-time low of 0.25 percent.
The move, which was not an unanimous one within the ECB’s decision-making governing council, caught the financial markets by surprise and Praet revealed that there had been much discussion between the council members.
“There was a lot of discussion about timing, but not many differences about the analysis,” Praet said. The move was triggered by the ECB’s assessment that inflation in the euro area — which hit a low of 0.7 percent in October — would remain very subdued for some time, Praet said. But it was not based merely on the inflation data for a single month. “We decided that we had sufficient information to announce what we did. We didn’t decide on the basis of just one figure,” he insisted.
The Organisation for Economic Cooperation and Development said in its latest economic outlook yesterday that the ECB should consider extra action to ease monetary conditions in the eurozone if deflationary pressures increased. AFP
