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German banks warn against further monetary easing in euro zone

Xinhua, March 9, 2016 Adjust font size:

German banks warned against further easing of monetary policy in the euro zone on Wednesday, ahead of the European Central Bank's (ECB) speculated decision on Thursday to further cut interest rates and expand bonds purchasing.

Risks of deflation in the common currency area was overstated by the ECB, said the Association of German Banks, urging the central bank to hold a "steady hand" policy instead of further expansionary measures which "cause more harm than good."

"We do not see any danger of deflation and warn against unnecessary emergency calls," said the association's general manager Michael Kemmer in a statement.

Analysts expected the ECB to cut a benchmark interest rate by another 10 points to minus 0.4 percent, charging commercial banks more for storing money at the central bank instead of lending out. The ECB's assets purchasing scale, which currently stands at 60 billion euros (65.7 billion U.S. dollars) per month, was also expected to be expanded.

In January, ECB president Mario Draghi said there was "no limit" to the central bank's willingness to deploy instruments within its mandate to lift the inflation rate in the euro zone, which fell to minus 0.2 percent in February, up to a level "below, but close to" 2.0 percent.

Within the ECB's governing council, however, not everyone agrees on a policy of quantitative easing. German central bank Bundesbank president Jens Weidmann has publicly opposed the assets purchasing program and warned against overreacting to falling oil prices.

Meanwhile, the Association of German Banks warned on Wednesday that "further opening of floodgates" would lead to counter measures. "At the end, there will be a race of devaluation which has no winner," Kemmer said, adding that income of euro zone financial institutions was also under pressure due to low interest rates.

The association saw the sovereign debt crisis in the euro zone as still "smoldering" and the area would grow moderately by 1.5 percent this year and in 2017. The refugee crisis and a possible Brexit also posed challenges to growth.

"Governments in Europe urgently need to find back the consensus that European problems can only be solved together," Kremmer said. "This means each member country should hold to its economic and political responsibilities." Endit