PARIS (MNI) – Negative real short-term interest rates in the
Eurozone favor excessive risk-taking and market distortions, European
Central Bank Executive Board member Lorenzo Bini Smaghi warned in an
interview released Wednesday.
“For the moment, there are no second-round effects and inflation is
mainly imported,” Bini Smaghi told the French daily Le Monde. “But
interest rates are now lower than inflation, which could have been
justified in a scenario of deflation risks.”
“Even though the moderate economic recovery we expect in the
Eurozone is shrouded by uncertainty, we are no longer in a scenario of
deflation risks,” he said. “We must take this into account when we
decide on the level of interest rates.”
“Maintaining rates so low makes monetary policy very expansionary,
at the risk of creating distortions on the markets and inciting
financial institutions to take excessive risks,” he argued.
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