The negative side-effects of the European Central Bank’s bond-buying are increasing while its benefits are fading, one of its senior executives has said, warning that the policy is inflating asset prices and creating risks of financial instability.
Isabel Schnabel, the ECB executive responsible for market operations, said asset purchases were “an important tool” during times of market turmoil or recession, “but their cost-benefit ratio deteriorates as the economy gains ground”.
Bond purchases increased “moral hazard” by making investors reliant on them, Schnabel said, adding they may cause “excessive risk taking and overvaluations”, as well as creating a shortage of sovereign bonds in some countries such as Germany.
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