The ECB has decided to leave its key interest rates unchanged and to
continue its bond-purchase programme as planned until the end of the year.
ZEW's Professor Friedrich Heinemann comments on the ECB's decision:

"The ECB does well to not adopt hasty measures as this may cause a stir in
the markets. The ECB will now have to continue its asset purchase programme
until the end of the year, according to plan. Otherwise, uncertainty in
the markets would be the result. What is urgently needed, however, is a
clear perspective for 2018 with a realistic strategy to taper purchases of
government bonds.

Just like quitting drugs, the phasing out of monetary easing measures is
likely to cause withdrawal symptoms at the bond markets – even panic
attacks are conceivable. This is why the ECB now needs to adopt careful
expectation management practices. In this respect, ECB President Mario
Draghi has remained too vague.

There is also a striking asymmetry that should be viewed in a critical
light. When oil prices were on the decline, the ECB hardly recurred to the
falling energy prices to relativize the low inflation rate. Now that oil
prices are high, ECB officials are trying to minimise the inflation
increase and justify their lack of determination by playing the oil price
card. This could adversely affect the ECB's reputation as it creates the
impression that – with respect to the target rate – the ECB is more
tolerant towards upward deviations than towards downward deviations."

For further information please contact:
Prof. Dr. Friedrich Heinemann, Phone +49(0)621/1235-149,
E-mail heinemann@zew.de