Austrian central bank Governor and one of the newest members to the European Central Bank policy panel, Robert Holzmann, voiced concerns over the central bank's unconventional negative interest rate policy, Reuters reported Oct. 18.
The governor said the newest policy by the outgoing ECB chief Mario Draghi will have a negative impact on the eurozone's economy. He reportedly added that insurers and funds must take on more risk given the low returns despite potentially endangering financial stability.
"In an environment of highly fixed inflation expectations, it becomes too expensive and difficult to reach the target, you need too much liquidity to do it," Holzmann told Reuters.
Italian central bank chief and ECB member Ignazio Visco echoed Holzmann's concerns. Speaking to CNBC at the IMF and World Bank annual meetings in Washington, D.C., he said that the "unconventional" financial policy may have "unintended consequences."
"At the end, we concluded that the package that we put together would be beneficial and even the elements of the package taken one-by-one would have a positive effect up to a point. And I think we are very close to that point," Visco said.
Under negative interest rates, banks are charged to deposit cash at the ECB which yields lower profits for lenders. The new policy is also expected to avert investment as it may result in fund managers searching for yield.
Incoming ECB chief Christine Lagarde, who takes the helm from Draghi on Nov. 1, has promised a complete review of the central bank's financial strategy.