Saturday, Jun 03, 2006

Outgoing ECB chief says low interest rates are ECB's biggest mistake so far

Telegraph.co.uk: Outgoing euro chief warns of 'tensions'

Dr Otmar Issing said the ECB's biggest mistake so far has been to cling to lax monetary policy too long, allowing excess liquidity to build up. The M3 money supply has grown 8.8pc in the year to April, accelerating to a 10.5pc annual rate over the past three months.

"This high liquidity contains the potential for inflation. It has also led to a hunt for higher yields. Risk premiums have been so compressed that a lot of investors are no longer aware to the real risk they are taking on," he said.

Unlike the US Federal Reserve, which abolished M3 data this year and takes a benign view of asset bubbles, the ECB views any surge in the money supply as a portent of trouble.

Posted by cgnao @ 07:54 AM (484 views)
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