Germany’s Bundesbank said that the European Central Bank’s low interest-rate policy is endangering the stability of the financial sector.
“The longer the low-interest-rate environment lasts, the greater the undesired side-effects and risks for financial stability,” Bundesbank board member Andreas Dombret said today in Frankfurt, where he presented the central bank’s annual financial-stability report. “The low-interest-rate environment is placing a growing strain on the German financial system.”
The Bundesbank’s warning comes a week after the ECB reduced its benchmark rate to a record low of 0.25 percent to fight inflation at its lowest in four years and rekindle growth. About one quarter of the 23-member Governing Council opposed the move, among them Bundesbank President Jens Weidmann and Germany’s representative on the ECB’s Executive Board, Joerg Asmussen, according to two people familiar with the talks.
“The debt crisis is not yet over,” Bundesbank Vice President Sabine Lautenschlaeger said. “The time bought using central bank measures must be used to tackle the causes of the crisis through structural and institutional reforms.”
Low interest rates and liquidity provision for banks have helped the German financial system and prevented a financial collapse, the Bundesbank said in the report. At the same time, German banks suffer from low borrowing costs because the price they can charge for loans is traditionally their most important source of income, it said.
While record-low interest rates have increased demand for real estate, the Bundesbank doesn’t see an imminent threat for financial stability in the form of a housing bubble.
“In view of households’ sound levels of debt sustainability and a moderate rate of growth in lending, rising property prices do not at present harbor any excessive risks to stability,” Dombret said.
To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net
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