FRANKFURT (MNI) – The European Central Bank’s main interest rate is
“appropriate” for the moment, but there is nothing preventing the
central bank from cutting it below 0.75% if needed, according to ECB
Governing Council member Klaas Knot.
“Currently, we believe 0.75% is appropriate,” Knot said in an
interview released Thursday by Financial Times Deutschland. “Should the
situation worsen, there is no article of faith that would prevent us
from going below 0.75%.”
Knot, who also heads the Dutch central bank, said the decision to
cut rates further would be based on the outlook for inflation, which had
been the key determinant for cutting rates at the last meeting.
“The only reason we went to 0.75% is because of medium-term
expectations for price stability. Inflation expectations fell before our
rate cut. The same was true for producer prices,” he said.
“Before, everyone believed 1% was the rate floor. Our decision
showed that was not the case,” Knot added. “Now, I can only say that
0.75% is no article of faith for us” either.
“The only article of faith we have is that the interest rate level
must bring us as close as possible to price stability over the medium
term, which means an inflation rate of below, but close to 2%” for the
Eurozone, he said.
Knot said the ECB would have to examine other countries’
experiences before considering whether it can bring the discount rate
below 0%.
“We have no experience with negative interest rates,” Knot said,
adding the ECB is “watching closely” the experience of Denmark, where
the discount rate is currently at -0.2%.
“We should learn from the experiences of other countries with
negative rates before we decide if this is an option for us,” Knot said.
— Frankfurt bureau: +49 69 720 142; email: ccermak@marketnews.com —
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