Asmussen: ECB Not At Lower Bound On Interest Rates

(RTTNews) - The European Central Bank has room to cut interest rates further and it will also consider charging banks to deposit their cash, but such a move was unlikely in the near term, European Central Bank Executive Board Member Jorg Asmussen said on Tuesday.

The central bank has not reached the lower bound on interest rates and it depends on how inflation develops, Asmussen said in an interview to the German daily Neue Osnabruecker Zeitung. Last week, the ECB sprung a surprise by cutting the key interest rate by a quarter-point to a record low 0.25 percent, given the combination of low inflation, record unemployment and a stronger currency.

The policymaker said that it was out of question that the ECB had to cut rates this month to maintain the price stability goal. He also stressed that it was important that the central bank disclose the voting pattern of its rate-setting sessions.

The central bank maintained the zero deposit rate last week. Today, Asmussen said a negative deposit rate cannot be ruled out. "I would be very wary of such a step, because if has a strong signalling effect, but I would not rule it out in principle," the policymaker added.

After announcing the latest interest rate cut, ECB President Mario Draghi had reiterated that the bank stands ready to move the deposit rate lower, when needed. He also revealed that policymakers did discuss the deposit rate last week.

Asmussen said that the ECB can also consider removing the minimum reserve requirement for banks, thereby providing them more liquidity.

Regarding the German concern that lower interest rates only benefit the peripheral economies, Asmussen said the country is not an island and it was better for the German saver that things get better in the periphery.

Fellow policymaker Benoit Coeure said in an opinion piece in the Handelsblatt yesterday that savers are not losers under the ECB's monetary policy. "The current low returns for savers are mainly an ongoing result of the recent deep recession and of the fragmentation of the financial market in the euro area," the policymaker said.

"Higher key interest rates would have exacerbated the recession, delayed the recovery and contributed to deflationary risks."