The European Central Bank does not have the instruments to fight deflation and monetary policy has run out of tools, German Finance Minister Wolfgang Schaeuble has told Bloomberg in an interview.

With the euro zone economy stagnating and inflation running far below the ECB's target of just under 2%, market expectations are growing that the central bank will take fresh action.

But Mr Schaeuble told Bloomberg in comments published today: "I don't think ECB monetary policy has the instruments to fight deflation, to be quite frank,"

Domestic demand is driving German growth "because we have high confidence of consumers, investors," he added.

Mr Schaeuble said the ECB could only do so much.

"Monetary policy can only buy time," he said.

"Liquidity in markets is not too low, it's even too high. Therefore I think monetary policy has come to the end of its instruments and therefore what we urgently need is investments, regaining confidence by investors, by markets, by consumers."