Jens Weidmann Says 2019 Rate Expectations Are Not Absurd

TL;DR

Weidmann addresses Bundesbank's provisions, rate expectations, and bank relocations.

Transcript

the provisions you've made 1.8 billion that's probably not going to be the last you were very clear in the news conference that Prudence is the key word but how big could the potential losses be for bundes Bank well that depends of course on the interest P rate path you assume but uh we think that with the provisioning that we started now we are ta... Read More

Key Insights

• Jens Weidmann emphasizes the importance of prudent provisioning for interest rate risks, acknowledging changes in the Bundesbank's balance sheet due to asset purchase programs.
• Market expectations for a rate hike in 2019 are not considered absurd by Weidmann, although he refrains from commenting directly on market forecasts.
• The Bundesbank is prepared for potential risks, including political outcomes, but does not see the need for preemptive extraordinary measures.
• Weidmann highlights the robustness of the global and Euro area economies, suggesting that domestic price pressures are expected to increase.
• The decision to buy shorter-dated paper and below the deposit facility rate eases the implementation of asset purchase programs.
• Weidmann sees potential relocations of banks across various European cities, not just Frankfurt, as a spreading of risk rather than a concentration.
• He stresses the importance of open markets and competitive environments for economic well-being, acknowledging past neglect of negative side effects.
• The G20 discussions will focus on sustainable growth, digitalization, and investment in Africa, with an emphasis on understanding new U.S. administration policies.

Questions & Answers

Q: What is Jens Weidmann's view on market expectations for a 2019 rate hike?

Jens Weidmann considers market expectations for a rate hike in 2019 to be within the realm of possibility, though he does not comment directly on market forecasts. He acknowledges that these expectations are not absurd, indicating that they align with possible scenarios considered by the Bundesbank.

Q: How does Weidmann view the potential relocation of banks to Frankfurt?

Weidmann believes that while Frankfurt is an attractive location with much to offer, banks will likely relocate across various European cities, not just Frankfurt. He sees this as a spreading of risk rather than concentrating it in one location, which aligns with the Bundesbank's regulatory perspective.

Q: What are the key topics for the G20 discussions according to Weidmann?

The G20 discussions, as outlined by Weidmann, will focus on sustainable growth, managing digitalization, and ensuring investment in Africa. These discussions will also include understanding the policies of the new U.S. administration, highlighting the importance of international cooperation and open markets.

Q: What is the significance of the Bundesbank's provisioning approach?

The Bundesbank's provisioning approach is significant as it reflects a conservative stance towards managing interest rate risks, especially given the changes in the balance sheet due to asset purchase programs. This approach ensures that the bank is prepared for potential financial uncertainties in the future.

Q: How does Weidmann view the current economic outlook for the Euro area?

Weidmann views the economic outlook for the Euro area positively, noting a certain robustness in the economies despite past risks. He expects domestic price pressures to increase, suggesting a continued upswing in economic activity that supports the current monetary policy stance.

Q: What changes have been made to the asset purchase programs?

Changes to the asset purchase programs include the decision to buy shorter-dated paper and allow purchases below the deposit facility rate. These adjustments ease the implementation of the programs and help maintain necessary distance from monetary financing, according to Weidmann.

Q: Does Weidmann see any major risks from the Trump administration's policies?

Weidmann does not specifically identify policies from the Trump administration as major risks but emphasizes the importance of open markets and competitive environments. He sees the G20 discussions as an opportunity to form a consensus on the benefits of free trade despite potential challenges.

Q: How does Weidmann address the potential for extraordinary measures by central banks?

Weidmann asserts that central banks are always prepared to cope with emergencies, but he does not see the need for preemptive extraordinary measures in response to potential political outcomes. He emphasizes that markets can assume central banks are prepared for various scenarios.

Summary & Key Takeaways

• Jens Weidmann discusses the Bundesbank's approach to provisioning for interest rate risks, citing changes in the balance sheet due to asset purchase programs. He suggests that market expectations for a 2019 rate hike are reasonable but does not comment directly on forecasts.

• Weidmann acknowledges the robustness of both global and Euro area economies, expecting domestic price pressures to rise. He emphasizes the importance of competitive markets and open trade while addressing past neglect of negative side effects.

• He discusses potential bank relocations across Europe, viewing them as a spreading of risk. The G20 agenda includes sustainable growth, digitalization, and investment in Africa, with a focus on understanding U.S. policies under the new administration.