Interest rate risks warning

Germany's central Bundesbank warned Tuesday that the current eurozone interest rate levels were prompting some investors to take too many risks.

Presenting the bank's annual financial stability report, Deputy President Claudia Buch said the current low interest environment incentivized ''investors to take too many risks in some asset classes.'' She added that the longer the low rate period lasted, the greater the risk of "exaggerations" emerging in various market sectors.

ECB now a global exception

The European Central Bank(ECB) is currently trying to head off a deflationary cycle, as the currency bloc's inflation rate languishes at 0.4 percent with strong downside risks. It is pursuing an accomodative monetary stance until growth kicks in again, holding interest rates at an historic low.

But growth has already taken root in other economies like the US and Britain, where the Federal Reserve and the Bank of England are now considering when to start raising rates. That is causing concerns about potential asset-price bubbles in Germany, especially in the property market.

Buch said that although there was so far no evidence of a property bubble in Germany, the Bundesbank was ''keeping a very close eye on the real estate market'' and would act if it deems it necessary.

Germany still reluctant about QE

Her comments came only a day after Bundesbank President Jens Weidmann warned of ''legal limits'' the ECB would face if it embarked on further measures to boost eurozone growth, such as printing money to buy government bonds, a strategy known as Quantitative Easing (QE).

Weidmann has also said monetary policy could not boost long-term growth, calling instead for reforms to make the weak economy more investment-friendly.

The ECB publishes its own financial stability report for the wider euro area later this week.

bew/uhe (AFP, Reuters, DPA)