Tighter Monetary policy for ECB

The chief executive of Germany’s most prominent bank, Deutsche Bank, has called on central bankers to tighten monetary policy to provide “countermeasures” against surging inflation. However, he warned it was producing risky side effects and would last longer than policymakers expected.

Speaking at a conference in Frankfurt yesterday, he added: “The consequences of this ultra-loose monetary policy will become increasingly difficult to fix the longer central banks fail to take countermeasures.”

Deutsche Bank head Christian Sewing said: “The supposed cure-all of the past years — low-interest rates with seemingly stable prices — has lost its effect, now we are struggling with the side effects. The $27tn rise in global government, corporate and household debt to $226tn last year, based on IMF figures, was “simply unsustainable in the long term and a constant potential trouble spot for the global financial markets”, Sewing warned. “But this, in turn, has considerable risks and side effects: inflation is on the rise around the world faster than any economist would have anticipated a year ago.”

While many central banks are ending asset purchases and raising rates, the ECB is expected to continue buying bonds for at least another year and has insisted a rate rise is a distant prospect. “The ultra-loose spending policies of many governments are only made possible by an equally generous monetary policy that drastically intervenes in pricing on the bond market.

Sewing is a longstanding critic of the European Central Bank’s use of negative interest rates to stimulate the economy. His comments reflect the aversion of many German banks to negative interest rates, which they argue have eroded their profit margins.

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