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Weidmann Says ECB Would Only Cut Rates If Data Worsen

ECB Governing Council Member Jens Weidmann
ECB Governing Council Member Jens Weidmann said, “We shouldn’t expect too much” from a potential rate cut. Photographer: Ralph Orlowski/Bloomberg

European Central Bank Governing Council member Jens Weidmann said the bank would only cut interest rates if economic data worsen.

“We didn’t change interest rates at our last meeting as they are currently appropriate and in accordance with our assessment of economic developments, price stability and our monetary analysis,” Weidmann, who heads Germany’s Bundesbank, said today at a press conference in Washington. “Of course, we will reassess the adequacy of the rates if the data change.”

The euro rose after Weidmann spoke, climbing almost half a cent to $1.3130.

The ECB left its benchmark rate unchanged at a record low of 0.75 percent on April 4. At the same time, with doubts growing about the central bank’s forecast for an economic recovery later this year, President Mario Draghi signalled policy makers are looking at a range of measures, including lower rates.

“We shouldn’t expect too much” from a potential rate cut, Weidmann said today. “Monetary policy will not be able to solve structural problems in the euro area.”

Asked what the ECB could do to encourage lending to small and medium-sized companies in southern Europe, Weidmann said that “higher interest rates for these companies might simply show a higher credit risk,” and that it’s not the central bank’s job “to influence the market on this issue.”

“What we can do is provide liquidity,” Weidmann said. “We have already done this with two long-term loans and this has helped” in addressing funding problems in Europe, he said.

Asked about the Bank of Japan’s plan to increase its bond purchases, a move that has caused the yen to weaken, Weidmann said that “monetary policy must never manipulate exchange rates.”

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