Gertrude Tumpel-Gugerell, a former European Central Bank Executive Board member, said there are no limits on the ECB’s ability to provide liquidity to fight the euro area’s debt crisis, according to an interview published in Oberoesterreichische Nachrichten.
“The ECB has great staying power,” Tumpel-Gugerell, 59, who retired from her ECB position last year, was quoted as saying by the Linz, Austria-based newspaper. “It can decide on its own for how long it provides liquidity. Its instruments are manifold and it decides autonomously which one it’s using, and when,” she said, adding that the ECB must also observe its primary goal of price stability.
The ECB cut its benchmark rate to a record low of 1 percent in December and pumped 1 trillion euros ($1.3 trillion) into the banking system to secure the supply of credit to households and companies. The euro-area economy is projected to shrink by 0.3 percent in 2012, the International Monetary Fund said April 17.
Tumpel-Gugerell said that the low level of interest rates was a belated consequence of the financial crisis and that they would begin to rise again when the global economy picks up.
“In the long term, such low rates are not desirable,” Tumpel-Gugerell said. “Higher rates prevent a misallocation of capital. Higher rates are also important for the build-up of savings, such as for retirement.”