Mersch sees no financial stability risks from low ECB rates
FRANKFURT, Sept 6
FRANKFURT, Sept 6 (Reuters) - The European Central Bank does not see risks to financial stability stemming from its record low interest rates that would merit policy action, ECB Executive Board member Yves Mersch said on Friday.
Speaking a day after the ECB said it was ready to cut interest rates or pump more money into the euro zone economy, Mersch also said the bank had to watch that inflation did not drift too far from its target on the upside, or the downside.
"We do not see risks to financial stability stemming from the current low level of interest rates that would warrant policy action," Mersch said in a speech at an ECB roundtable event in Frankfurt.
"Moreover the medium-term outlook for inflation remains subdued."
Turning to inflation, Mersch said that the central bank would not tolerate too low inflation any more than it being above its target of below, but close to 2 percent.
"The central bank has to achieve its objective symmetrically: to avoid falling short of its price stability objective on either side," he said.
Euro zone inflation slowed to 1.3 percent in August. The ECB staff projections, published on Thursday, see inflation remaining at that level next year.
Mersch also said that, in general, low rates can boost asset prices to excessive levels.
"Keeping monetary policy rates too low for too long may encourage excessive risk-taking in some markets," Mersch added. "This may spur the creation of asset bubbles and have repercussions on financial stability."
The bank left its key interest rate unchanged at 0.5 percent on Thursday, as expected by all 60 economists polled by Reuters.
But ECB President Mario Draghi said the policymaking Governing Council did discuss a possible rate cut at its monthly meeting, partly due to concern about money market rates and the uncertain nature of the recovery.
The ECB expects to begin its new role as European banking supervisor in the autumn of next year, and Mersch stressed there would be no conflict of interest between this new task and the central bank's job of delivering stables prices.
"In most of all cases the actions necessary to maintain price stability and those required to maintain financial stability are fully aligned," Mersch added.
"If, however a conflict arises between these two objectives, it is clear that ECB's mandate leaves no discretion: The primary mandate is to secure price stability. "
(Writing by Paul Carrel)