Weidmann: “Central banks should not abdicate macro prudential responsibilities”
Speaking at a conference organised by the ifo Institute, Jens Weidmann (pictured), president of the German central bank Bundesbank, highlighted the key role of central banks in ensuring financial stability.
“Whether it is intentional or a side-effect, monetary policy affects the risk appetite of financial market participants and therefore overall financial market stability” said Weidmann.
The Bundesbank has been among the fiercest critics of the ECB’s decision to introduce quantitative easing measures. Speaking at the ifo conference in Munich, Weidmann reaffirmed this criticism.
He argued that the assessment of a deflationary threat in the eurozone has been largely driven by a decline in energy prices and its detrimental effect on the eurozone economy has been overstated.
Weidmann praised the growth of macroprudential supervision, but highlighted that it is still ”work in progress.” Consequently, “central banks should not abdicate their macro-prudential responsibilities.”
Highlighting the impact of central bank liquidity measures on asset price growth, Weidmann warned that real estate prices in key urban centers of Germany are currently 10-2-% overvalued.
“If speculative overvalutation of real estate prices is combined with growing indebtedness of households, a fall in prices can lead to over indebtedness” Weidmann warned.
He stressed at the same time that current asset price bubbles in Germany are not representing a systemic risk.