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Asmussen Says ECB Must Be Cautious on Further Rate Cuts

European Central Bank Executive Board member Joerg Asmussen said while policy makers are prepared to cut interest rates again if the economic situation warrants it, they must also exercise caution.

The ECB lowered rates last week “because data justified it, and we also clarified that we are ready to act again if the economic data require us to do so,” Asmussen said at an event in Schwaebisch Gmuend, Germany, last night. “But of course we also have to be cautious. If we keep interest rates too low for too long, it can have real costs.”

The Frankfurt-based ECB on May 2 cut its benchmark rate to a record-low of 0.5 percent and said it is also open to taking its deposit rate, currently at zero, into negative territory. President Mario Draghi said the decision was reached by consensus, meaning not all of the ECB’s 23 Governing Council members agreed with the move. Asmussen reiterated last night that the decision was taken “by consensus.”

“We have done a lot with standard measures like interest-rate cuts, and non-standard measures,” such as the pledge to buy government bonds if certain conditions are met, Asmussen said. Leaving rates too low for too long could, for example, prompt investors to “shift their investments from savings to stocks without it being justified by fundamentals,” he said.

Draghi and ECB board member Benoit Coeure both said this week that the ECB is ready to cut rates again if needed.

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