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Report: German central banker opposes large stimulus despite 'uncertain' outlook

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Report: German central banker opposes large stimulus despite 'uncertain' outlook

German central bank head Jens Weidmann signaled his opposition to a major economic stimulus package while acknowledging that interest rates in the eurozone could fall further into negative territory, amid expectations that the European Central Bank could cut rates next month and resume its asset purchase program in a bid to boost inflation and shore up growth across the region.

In an interview with Frankfurter Allgemeine Sonntagszeitung, the Deutsche Bundesbank governor said there was "no reason to panic" despite signs of an economic downturn in Germany and in the broader single-currency area. Germany's GDP contracted 0.1% in the second quarter, adding to fears that Europe's biggest economy could slip into a recession.

"The current outlook is particularly uncertain... But we shouldn't surrender to pessimism or activism," Weidmann was quoted as saying.

Weidmann, who is seen as one of the ECB's hawkish members, said he was "particularly cautious" about purchases of government bonds as they could obscure the difference between monetary and fiscal policy.

Minutes from the ECB's July meeting showed that policymakers were in favor of a package of stimulus measures to increase inflation, supporting market expectations of easing steps at the central bank's next meeting in September.

"The lower the interest rates, the stronger the incentive to hold cash," Weidmann said. "However, we have not reached this point in my view."

Weidmann also said Germany's "automatic stabilizers" such as social welfare benefits should be considered first in response to economic weakness.