Central Banks

Why we have to be ‘very careful’ on QE: ECB’s Nowotny

Catherine Boyle and Louisa Bojesen
Have to be careful about ECB's QE exit: Nowotny

The European Central Bank (ECB) will have to be "very careful" unwind its trillion-euro bond-buying program, a leading member of the central bank's governing council has warned.

Ewald Nowotny, governor of Austria's central bank as well as an ECB board member, told CNBC: "We watch with great interest the American experience.

"I think the Fed is doing quite a good job in being very cautious with its policy of tapering."

A U.S. flag flies on top of the Marriner S. Eccles Federal Reserve building in Washington, D.C.
Fed completes the taper

While the ECB took until March this year to launch its 60 billion euro ($66 billion) per month quantitative easing (QE) program, the U.S. Federal Reserve pumped money into its financial system much earlier in the global debt crisis, back in 2008. The U.S. central bank is already in the process of unwinding its asset purchases via so-called "tapering".

Since the ECB's asset purchase program began in March, unexpectedly good economic data from the euro zone has led to some speculation that it might finish earlier than the planned September 2016 deadline. However, Nowotny indicated he wanted to stick to the existing timetable.

Mario Draghi, president of the European Central Bank
Does Draghi have a case for pursuing further QE?

Unfortunately, the economic situation in Europe is in a worse shape than compared with the US, so we are not at the same point of the cycle. So we are now in an upswing, but it is later than the US," Nowotny warned.

Draghi: ECB QE risks are contained

One concern about the long-term impact of QE is that it will lower the value of savings and pensions by devaluing assets like bonds, which form a key part of these assets. At the same time,historically low interest rates mean that returns on savings are lowered.

Nowotny cautioned that "this world of ultra low interest rates is not a long-term equilibrium".

- By CNBC's Catherine Boyle