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ECB’s Bini Smaghi Says Rates “Very Close” to the Floor (Update)
(CEP News) Frankfurt - European Central Bank Executive Board member Lorenzo Bini Smaghi said that the ECB’s key policy rate is “very close” to its minimum level and dismissed fears of deflation within the euro zone.
In an interview with the Financial Times Deutschland published on Monday, Bini Smaghi stressed the importance of keeping the key policy rate at a “certain level” without adding unnecessarily to liquidity levels or inflation expectations. “I think we are very close to this level,” Bini Smaghi said.
The central banker also said that he did not see a risk of deflation and warned against “exaggerated deflation fears” leading to rates being brought down too low. He also said that he expected core inflation to remain
Furthermore, the policy maker said that he expects an economic recovery by next year. However, the shape of the recovery will not be V-shaped. “This time, it will be more like a mirror-inverted ‘J’,” he said. Bini Smaghi added that the growth potential of the economy following the crisis would likely be lower than before.
“The first quarter of this year will probably be as bad as, or even worse than, the last quarter of 2008,” Bini Smaghi said. The upcoming quarters will also see negative growth, he added, “but at a much slower pace”.
He also stressed the need for an exit strategy for when the economic and financial situation stabilizes and banks require less liquidity provisions.
“Actually, we are seeing exactly this happening in the first few months of this year,” Bini Smaghi said. “This is a built-in exit strategy that comes from within.
Written by CEP News European Staff, eunews@economicnews.ca
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Posted in Categories: Economy, Eurozone, Releases.
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