The European Central Bank could cut its key interest rates further and engage in asset purchases if the outlook for the euro area economy requires, said European Central Bank Governing Council member Ignazio Visco.
“Interest rates are low but they can still be cut if needed,” Visco said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. Within the ECB’s mandate, “there are assets that can be considered” for direct purchase in case of crisis, he said.
The Frankfurt-based ECB lowered its benchmark rate to a record low of 0.25 percent in November and said risks to the euro-area economy remain on the downside. Banks including Barclays Plc (BARC) and Commerzbank AG forecast a further cut in coming months, bringing rates even closer to zero as the 18-nation currency bloc struggles with record-high unemployment and dwindling lending to businesses.
Visco said the ECB has “many instruments” it can use, conventional and unconventional, to bolster the economy. While a further rate reduction would be effective, “one has to be careful the signal is not a negative signal if you cut,” he said.
The ECB is “very, very attentive” to deflation risks in the euro area, he said. Inflation slid as low as 0.7 percent in October and is forecast to be 1.1 percent in 2014 and 1.3 percent in 2015. That’s well below the ECB’s target of just under 2 percent.
There are no signs that the euro will further appreciate against its peers and its current strength is a consequence of the currency bloc’s “substantial current account surplus,” according to Visco, who is also the governor of the Bank of Italy.
The single currency has climbed 3.9 percent against the dollar in the past six months, threatening to undermine the competitiveness of euro-area exporters.
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org