The main policy rate in the euro area, which is set by the Governing Council of the European Central Bank (ECB), currently stands at 0%. The rate of inflation in February, meanwhile, came in at 2%, which is slightly higher than the target level which the Governing Council considers to be consistent with price stability. "When are interest rates going to pick up again?" was the first question which Michael Bröcker, editor-in-chief of the Rheinische Post, put to Bundesbank President Jens Weidmann at a "town hall"-type meeting with the newspaper’s readership in Düsseldorf. Mr Weidmann responded by explaining that current inflation rates in the euro area are indeed consistent with the definition of price stability, but noted that they are being driven in part by rising energy prices. "The rate of inflation won’t stay this high," he remarked. "We’ll see the rise in energy prices wash out again."

© Andreas Bretz

© Andreas Bretz

© Andreas Bretz

© Andreas Bretz

© Andreas Bretz

© Andreas Bretz

pause

Mr Weidmann qualified that remark by warning against leaving monetary policy in accommodative mode for longer than absolutely necessary. Under no circumstances, he said, should the Eurosystem be forced into keeping interest rates low for longer than necessary – in order, say, to ease the financial pressure on sovereigns, or to stave off turbulence in financial markets. "We have to call time on the phase of low rates as soon as price stability allows it," Mr Weidmann emphasised. He reiterated his long-held view that the asset purchases by Eurosystem central banks are a particularly critical component of the loose monetary policy stance, saying that they were increasingly blurring the boundaries between monetary and fiscal policy. "Eurosystem central banks are turning out to be governments’ biggest creditors," he explained.

No risk to financial stability from high real estate prices

Besides current monetary policy, financial stability was another major topic at the event. Editor-in-chief Michael Bröcker asked Mr Weidmann whether the euro area is now more stable than it was before the crisis. Mr Weidmann replied that banks are far more resilient and have improved both the quality and the quantity of the capital they hold. He also reported that progress has also been made in regulating financial markets. Responding to another question from Mr Bröcker, Mr Weidmann said that rising real estate prices, which are a notable feature in large German cities, aren’t a threat to financial stability right now. "The high prices might be a problem for individual investors, but not for the banking system as a whole".

Turning his attention to the overall state of the economy in the euro area, Mr Weidmann pointed to the many economic problems which still persist, singling out the structurally high level of unemployment, the minimal growth opportunities and demographic trends, highlighting the latter as a particular issue facing Germany.

Weidmann fields questions from readers

Following his conversation with the newspaper’s editor-in-chief, Mr Weidmann fielded questions from the almost 200 Rheinische Post readers who had signed up for the event. One question concerned digital payment systems such as bitcoins, to which Mr Weidmann remarked that the value of bitcoins is very volatile, which makes them less than ideal for users. The Bundesbank President reported that, while he doesn’t see bitcoins as a rival currency, the underlying technology is promising, which is why the Bundesbank is currently exploring its potential in the field of payments.

Asked whether cash would soon be a thing of the past, Mr Weidmann sounded the all-clear, reassuring the questioner, "How you pay is up to you." Readers also expressed an interest in the incidence of counterfeits, the digitalisation of the financial sector, the TARGET2 balances, the rotation system used in the ECB’s Governing Council, and the Bundesbank’s tasks in Germany.