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ECB Buying Equities for Stimulus Isn’t Option, Nowotny Says

ECB Buying Equities for Stimulus Isn’t an Option, Nowotny Says

(Bloomberg) --

Adding equity purchases to the European Central Bank’s monetary-policy mix isn’t a realistic option, according to outgoing Governing Council member Ewald Nowotny.

“I would completely exclude it” as a tool because “for Europe it is inappropriate,” Nowotny told reporters in Alpbach, Austria. “We can tweak the instruments we have to a certain extent, but I wouldn’t expect us to have new measures.”

ECB staff are working on a stimulus proposal for policy makers to consider at their Sept. 12 meeting, after President Mario Draghi all but promised action in light of a deteriorating economic outlook, feeding investor expectations for interest-rate cuts deeper below zero and fresh asset purchases.

“The central bank has to know what’s going on in the markets but it should not be following the markets,” said Nowotny, whose term as head of the Austrian central bank expires on Saturday. “It should kind of steer the markets, and lead the markets, and there might be a certain danger that we’re too much following.”

The 19-nation region, and Germany in particular, are suffering from a weakening in global trade, brought on by intensifying trade tensions between the U.S. and China.

Officials have offered different views in recent days about how far the ECB can and should go in propping up demand. After Finland’s Olli Rehn called for an “impactful and significant” stimulus package, several of his colleagues including Jens Weidmann, Sabine Lautenschlaeger and Klaas Knot pushed back against too much policy activism.

Bond yields across the region are already close to record lows and negative in a significant segment of the market.

“It’s a worrying development,” Nowotny said. “I would consider a long period of negative yields problematic” because it would change the structure of capital markets.

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net;Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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