The head of the Austrian central bank, Ewald Nowotny, speaks at the Central European Investment Summit in New York yesterday.
THE head of the Austrian central bank yesterday challenged his German counterpart and defended the European Central Bank's controversial bond buying programme.
ECB Governing Council member Ewald Nowotny said the programme should not be ended too soon, as it would be useful as a "safety belt".
"I think it was effective at specific times when needed," Mr Nowotny said. "On the other hand, my personal view would be that it makes sense to use it as a safety belt. . . I would not throw it away too early."
The comments re-open a long-standing rift over the purchases between president of the German Bundesbank Axel Weber and a majority on the Governing Council.
On Tuesday, Mr Weber said it was time to stop the purchases. The ECB has spent €63.5bn buying bonds to date, its latest figures show.
The purchases provide cash for banks which sell government bonds they hold and may have at least smoothed changes in the price of bonds from deficit countries like Ireland.
Mr Weber, who has opposed the purchases from the start in May, said the programme has failed in its objective of calming bond market tensions. And there appeared to be some support for Mr Weber from Bank of France president Christian Noyer.
"Since 2008, the active presence of almost all central banks on a wide range of market segments could suggest that direct market intervention has become the general modus operandi of central banks," Mr Noyer said yesterday.
"Central banks require efficient markets to implement goals and this can lead to direct interventions in markets, but these interventions must remain exceptional," he said.
"Mr Weber's comments certainly didn't do his ambitions for the ECB presidency any favours," said Jacques Cailloux, chief European economist at Royal Bank of Scotland in London. "At the same time, he is being true to himself and he is speaking as the president of a central bank in a country where the economy is booming and where interest rates are far too low," he added.