Monetary policy no panacea - ECB's Nowotny in magazine
VIENNA (Reuters) - Accommodative monetary policy is no cure-all for Europe's economy and needs to be complemented with steps to fuel demand, European Central Bank Governing Council member Ewald Nowotny told Austrian magazine Trend.
"Monetary policy can create an expansive framework but it also has to be used by players in the economy. Monetary policy is not a panacea," he wrote in a commentary for the magazine published on Monday.
He again defended the ECB's move to buy covered bonds and asset-backed securities (ABS) as a way to help promote bank lending.
"The reputation of the ABS market in the euro zone is worse than its actual performance," he said, noting the default rate on European ABS since the outbreak of the financial crisis was on average only between 0.6 and 1.5 percent.
"It is thus misleading to describe ABS paper in general as junk," he said, calling ABS an important link between bank lending and borrowing on capital markets as finance moves increasing toward the latter.
He reiterated remarks that quality was more important than quantity for the ECB in such programmes.
Nowotny said the ECB's goal was to promote an economic recovery so that inflation would move closer to its target of below but close to 2 percent.
"The ECB can with its measures improve the supply of financing possibilities but to be effective there needs to be appropriate demand from investors and consumers. In all this requires initiatives to strengthen overall economic demand via for instance financial or structural policy."
(Reporting by Michael Shields; Editing by Paul Carrel)
