Mersch Has No ‘Religious Approach’ to Zero Rates
Written on March 18, 2009
European Central Bank council member Yves Mersch said he has “no religious approach” to lowering borrowing costs to zero, though policy makers must make sure that monetary policy doesn’t lose potency.
“We’re concerned to keep monetary policy effective,” Mersch told CNBC in an interview broadcast today. “Our monetary policy signals are mainly transmitted through the banking channel.” He said he must still be convinced that “helicopter spending” by governments will solve the economic crisis.
The Frankfurt-based ECB on March 5 lowered its key rate by a half point to a record low of 1.5 percent and President Jean- Claude Trichet indicated it may act again to combat the worst recession since World War II. At the same time, some central bankers are signaling unease with the prospect of rates falling much further for fear it won’t do much to reverse the current economic and financial turmoil.
“We’re concerned that we do the right things in the right moment,” Mersch said.
Separately, Executive Board Member Juergen Stark told Handelsblatt that the ECB doesn’t see a use of new policy tools in the near future as rates near zero credit scores.
“We’re not in a situation where we have to launch one or the other measure in the immediate future,” Stark said in an interview with the newspaper that was published today. “To us, it’s important to be prepared.” The ECB confirmed the comments.
Shrinking
The economy of the 16 euro nations is shrinking faster than the ECB expected just three months ago as the global slowdown curbs export demand and companies lay off workers. The bank this month cut its economic growth and inflation forecasts for this year and next.
The economy will contract about 2.7 percent this year and stagnate in 2010, according to the new forecasts. Inflation will average about 0.4 percent in 2009 and 1 percent next year, the projections show.
“Most European governments have had a very swift behavior in taking measures that were warranted and needed,” Mersch said. “We should now look how these measures are being implemented and how they work through the economy.”
Filed in: legal.