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Extended period of low ECB rates risks abrupt rise in risk premia: Weidmann

Investors may get increasingly nervous if the European Central Bank's ultra-low rates stay in place for an extended period, increasing the chance of a sudden increase in risk premia, Bundesbank President Jens Weidmann said on Friday.

"They (asset managers) might become increasingly nervous the longer monetary policymakers try to maintain the low-interest-rate policy," Weidmann told a conference. "This, in turn, could raise the probability of a sudden hike in risk premiums, the longer that forward guidance is in place and the more aggressively quantitative easing is pursued."

German Bundesbank President Jens Weidmann.
Ints Kalnins | Reuters

Weidmann, who also sits on the ECB's Governing Council, added that such a risk needs to be taken into account in setting rates, in order to avoid unintended consequences.

The ECB expects its rates to stay at their current or lower levels for an extended period and well beyond the scope of its asset purchases.

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