Dutch central bank chief criticises ECB interest rate cut to stimulate growth

Dutch central bank chief Klaas Knot has criticised yesterday’s decision by the European central bank to cut interest rates, in an effort to stimulate the region’s economy.

Knot, who is a member of the ECB’s governing council, said in a statement that measure is not in proportion to the current economic situation and that ‘there are sound reasons to doubt its effectiveness’.

‘The euro area economy is running at full capacity and wages are increasing. Financing conditions for consumers, businesses and governments are highly accommodating and provide no impediment to credit supply, consumption or investment,’ Knot said.

‘Meanwhile, there are increasing signs of scarcity of low-risk assets, distorted pricing in financial markets and excessive risk-seeking behaviour in the housing markets.’

The economic slowdown means that it will take longer for the ECB to reach its aim of inflation at below but close to 2%, Knot said. However, there is no risk of deflation nor any signs of a euro area-wide recession. ECB chief Mario Draghi said on Thursday there is a ‘low but rising’ risk of recession.

‘The only observation is currently that the inflation outlook lags behind the ECB’s aim,’ Knot said. ‘This is worrying, but it does not imply that restarting a far-reaching measure such as the APP is the appropriate instrument,’ Knot said.