“Monetary policy should not be overburdened and asked to do tricks it cannot deliver,” Weidmann said. It “should also not be expansionary for longer than necessary to ensure price stability as we should not forget that the loose monetary policy also creates risks and comes with side effects,” he said.
However, for monetary policy to exert stimulative effects it has to fall on fertile ground.”
Other than structural reforms, that comprises of a “rigorous” assessment of banks’ health, cleaning up their balance sheets and sufficient capitalization, he said.
Policy makers including ECB President Mario Draghi have told governments monetary and fiscal stimulus would only have limited impact if they didn’t make their economies ready to absorb it.
He said the policy went beyond encouraging banks to make private loans and amounted to pumping money directly into the real economy.