ECB's Asmussen warns about risks of low interest rates

SCHWAEBISCH GMUEND, Germany Tue May 7, 2013 2:54pm EDT

European Central Bank (ECB) Executive Board member Joerg Asmussen attends an interview with Reuters in Berlin, February 22, 2013. REUTERS/Pawel Kopczynski

European Central Bank (ECB) Executive Board member Joerg Asmussen attends an interview with Reuters in Berlin, February 22, 2013.

Credit: Reuters/Pawel Kopczynski

SCHWAEBISCH GMUEND, Germany (Reuters) - European Central Bank Executive Board member Joerg Asmussen on Tuesday raised concern about keeping interest rates in the euro zone at low levels for too long, calling upon governments to stick to their reforms.

The ECB cut interest rates to 0.5 percent last week after euro zone inflation fell sharply in April and unemployment hit a record high in March, signaling that it was ready to do more should the euro zone economy deteriorate further.

Asmussen reiterated the comments made by ECB President Mario Draghi last week, but also pointed to the risks that came with low interest rates.

"One has to be careful. Keeping interest rates too low for too long can lead to real costs. These costs rise over time," Asmussen said, pointing to a potential misallocation of capital.

He said recent economic data had been pour, but added that he expected to see an improvement over the course of the year, referring to the latest forecasts by the European Commission for economic growth of 1.2 percent in the euro zone next year.

Asmussen said the ECB had already done a lot to support the economy and called upon governments to stick to their reform programs and to continue to consolidate budgets, because there was no alternative.

"One shouldn't look to the Eurotower in Frankfurt with each economic problem," he said.

(Reporting by Eva Kuehnen; editing by Ron Askew)

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