FRANKFURT (MNI) – Disappointing Eurozone PMIs released last week do
not suggest that downside risks to the economy have begun materializing,
European Central Bank Executive Board member Joerg Asmussen said in an
interview with Finnish newspaper Helsingin Sanomat published on Monday.

“What we are seeing is a stabilization of the economic activity at
low levels. This is undisputed,” Asmussen asserted. “The likely outcome
is a mild recession this year, with a small contraction in the Eurozone
as a whole.”

On Thursday, preliminary PMIs showed that activity fell more
sharply than expected in March, indicating that the 17-nation single
currency area slid back into recession. PMI compiler Markit’s chief
economist Chris Williamson said the drop “suggests that policymakers
will need to seek ways to revive economic growth across the region
again.”

Asmussen kept the door open for further ECB support measures by
noting that the central bank never pre-commits, but he suggested that
markets should not bet on further easing measures.

“All non-standard measures are by their nature temporary. Nobody
should expect that we will do a third LTRO based on the fact that we
have already done two LTROs. In our view it is too early to decide on
the exit from non-standard measures, but we have to start to think about
how to prepare the exit,” Asmussen told the paper.

While he said that there are no doctrinal obstacles to cutting
interest rates further, Asmussen would not commit to keeping them low
for a protracted period.

Asked whether consumers and companies can expect rates to remain at
exceptionally low levels for many years to come, he said: “We never
pre-commit in our actions. Our standard measures such as changes in the
interest rates will always be set with the objective to ensure price
stability.”

He added: “All our policy decisions are guided by this objective.
Other economic goals fall into the competence of governments. There is a
clear division of labor.”

Asmussen said policymakers were seeing the first signs that the
ECB’s E1 trillion of three-year loans to banks are being transferred via
the banking sector to the real economy. “The first signs are positive,
but more study is needed. We need to see how this liquidity feeds
through over the next few months,” he said.

On the question of whether massive liquidity injections could boost
inflation down the line, Asmussen answered with a firm “no.”

“We monitor this very carefully. Inflation expectations across the
Eurozone are firmly anchored. Owing to rises in energy prices and
indirect taxes, inflation is likely to stay above 2% in 2012, with
upside risks prevailing. But in the medium term we expect price
developments to remain in line with price stability,” he said.

Asked about last week’s renewed rise of Spanish and Italian bond
yields, Asmussen said that “government bond yields provide an important
signal of the financial markets’ assessment of countries.”

“In our judgment, the debt crisis in some Eurozone countries is not
over. We have had relative calmness in the markets since the beginning
of this year. Governments of the affected countries should use this time
to implement necessary reforms to improve their fiscal position and
improve their competitiveness,” he stressed.

–Frankfurt newsroom +49 69 72 01 42; e-mail jtreeck@marketnews.com

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