Extended Period of Low ECB Rates Risks Abrupt Rise in Risk Premia: Weidmann

Investors may get increasingly nervous if the European Central Bank’s ultra-low rates stay in place for an extended period, increasing the chance of a sudden increase in risk premia, Bundesbank President Jens Weidmann said on Friday.

“They (asset managers) might become increasingly nervous the longer monetary policymakers try to maintain the low-interest-rate policy,” Weidmann told a conference. “This, in turn, could raise the probability of a sudden hike in risk premiums, the longer that forward guidance is in place and the more aggressively quantitative easing is pursued.”

Weidmann, who also sits on the ECB’s Governing Council, added that such a risk needs to be taken into account in setting rates, in order to avoid unintended consequences.

Reuters

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.