Dutch agency: ECB's low interest measure no longer effective

The European Central Bank's "abnormal measures" policy of keeping interest rates low and buying up debt is no longer having effect because these measures are now considered normal, the Central Planning Bureau concludes in its annual report on important economic developments and financial risks for the Dutch economy, NOS reports.

According to the CPB, the rescue operations around banks in the eurozone and the euro created all kinds of side effects. The low interest rates and buying of debts left countries with less incentive to reform structurally and reduce their debt.

The ECB's quantitative easing program now reached its halfway point. But the effectiveness is difficult to measure, according to the report. The euro's exchange rate no longer reacts to the reduction of the interest rates and the debt buying program. The link between putting more money into the economy and better lending is also difficult to prove and inflation remains low.

The CPB concludes that the monetary policy may be reaching its limits. The agency is also concerned about the withdrawal from this policy, as there is no exit strategy. No one can predict what will happen when interest rates are increased and the 1,740 billion euros of bought debts have to be replaced.

The continuing low interest rates also undermine the financial position of pension funds and insurers, something De Nederlandsche Bank also warned about last week. 

The CPB also concludes that the economy in the eurozone is recovering slowly but surely, but the low oil prices and faltering Chinese economy are causing continuing turbulence in the financial markets.