FRANKFURT/AMSTERDAM Top critics of the European Central Bank's asset purchase scheme expressed fresh doubts about the effectiveness of the program on Wednesday, laying down their arguments just as the bank prepares for a debate on extending the measures.
With its unprecedented 2.3 trillion euro ($2.6 trillion) bond buying scheme set to run until year's end, the ECB will have to decide this autumn whether to keep on buying to prop up a still weak inflation rate or start winding down the program.
Conservative countries led by Germany, the bloc's biggest economy, have long opposed the scheme arguing that its effect is questionable while risks are underestimated. With growth on its best run in a decade, they say the time has come for the ECB to step back.
Jens Weidmann, president of the powerful Bundesbank, argued that the ECB, now a top creditor to euro zone governments, is at risk of coming under political pressure because any hint of policy tightening poses the risk of pushing yields higher and blowing a hole in national budgets.
"At the end of the day, this can lead to political pressure being exerted on the Eurosystem to maintain the very accommodative monetary policy for longer than appropriate from a price stability standpoint," Weidmann told a conference on Wednesday.
"After all, in the context of these asset purchases, changes in monetary policy impact more directly on governments' funding costs than interest rate moves," he added.
At its June meeting the ECB did not even discuss winding down its asset purchasing scheme - a process known as tapering - but hawks want that to begin relatively soon, starting in 2018.
Analysts say there is a chance that when the ECB meets in September it could opt to continue buying bonds beyond the end of this year, perhaps at lower volumes.
That would allow the bank to keep its options open rather than commit to a firm, if relatively distant, date in the future.
IMPACT ON INFLATION
Dutch central bank chief Klaas Knot argues that the impact of the scheme on inflation has been negligible so far, even if it has helped growth.
"I think the effect (of asset buys) has been there in keeping the economic recovery going," Knot told Dutch lawmakers on Wednesday. "But the effect on inflation has just been what you'd call disappointing. Full stop."
"If you look at core inflation... then actually inflation has been flat for four years, flat as a pancake, and so you can barely observe any effect," Knot said.
Research published by the ECB on Tuesday argued that the initial launch of the scheme in 2015 is having an increasing impact on inflation. While the boost was negligible in early 2015, this grew to 0.18 percentage points by the end of 2015 and 0.36 percentage points in the fourth quarter of 2016.
Having flirted with deflation for years, price growth is now comfortably above 1 percent but is not expected to reach the ECB's target of almost 2 percent at least through 2019.
While the measures seem to be working much more slowly than the ECB had hoped, Estonian central bank chief Ardo Hansson, also considered a hawk on the rate setting Governing Council, argued that this is no justification fore more stimulus.
"We can't expect that there would be a very quick transition from monetary policy decisions to inflation," Hansson told Reuters in Tallinn. "We believe generally that the real economy is firming up and if we believe in these measures, then we should be just a bit more patient."
"We don't necessarily need to think that more measures are necessary. They will work their way through the system," Hansson said.
Defending the ECB's measures, Vice President Vitor Constancio said that policymakers still don't see a convincing and self-sustaining rise toward the ECB's inflation target.
(Additional reporting by Francesco Canepa in Frankfurt, David Mardiste in Tallinn and Isla Binnie in Rome; Editing by Jon Boyle)