Eurozone economic recovery picks up

BERLIN: Dutch central bank Governor Klaas Knot expects the eurozone economy to recover speed in the second half after a sluggish start to the year, but in an interview with Handelsblatt the noted hawk was distinctly dovish on long-term interest rates.

Knot, one of the most prominent hawks on the European Central Bank’s rate-setting committee told the German paper that though he was strongly in favour of normalising policy after years of anti-crisis measures, it was clear that even afterwards interest rates would be lower than before the crisis.

“It is clear that there has been a cooling off,” he said of the slack start to the year. “But there is no recession or crisis,” he said, adding that robust demand and rising wages suggested growth would soon pick up again.

He also repeated his scepticism about multi-tiered deposit rates to help well-capitalised banks with excess liquidity, saying he would need to see clear evidence that negative interest rates were hurting lending to the real economy.

Details for a new tranche of long-term ECB bank financing would be announced in June or July, he said, adding that conditions for the financing would likely be stricter than previously.

“I see the news programme, TLTRO III, as a bridge to ease the transition to market financing,” he said. “The new programme’s conditions will be less advantageous than before... We should avoid us needing to discuss a TLRO IV or V in a few years’ time.” He also issued a warning that markets had not yet fully priced in the potential impact of a disorderly Brexit on Britain’s currency.

“If it happened, there could potentially be a revaluation and the pound would come under pressure,” he told the newspaper in the interview, published on Sunday.

Reuters