ECB's Hansson: Sees a lot of attraction in keeping rate corridor

FRANKFURT Fri May 23, 2014 6:14am EDT

Related Topics

FRANKFURT May 23 (Reuters) - European Central Bank policymaker Ardo Hansson would be in favour of introducing negative interest rates on deposits at the ECB if the Bank decides to cut rates in June, he told MNI news agency.

The ECB has signaled its readiness to take policy action in at its June 5 meeting after it reviews new staff forecasts for the euro zone economy.

The majority of economists in a Reuters poll said earlier this week that they expect the ECB to cut what little it has left of its main interest rate and push the deposit rate below zero to temper the euro's strength and counter low inflation.

Hansson told MNI in an interview published on Friday that he would prefer to cut both rates.

"Personally, I see a lot of attraction in keeping a certain width of the corridor. Certainly if you do keep that corridor it is a more powerful instrument than if you were to narrow it," Hansson was quoted as saying.

"If the corridor becomes too narrow, then you drive banks towards the Eurosystem again," he said.

Hansson, the governor of the Estonian central bank, also said that the recent appreciation of the euro should not be seen uniformly negative for medium-term price stability and that its impact on market interest rates should be taken into account.

"The combined effect is important to keep in mind," he said.

Among possible policy tools the ECB could deploy is a targeted liquidity injection, which means giving banks extra-cheap long-term funding if they can prove that they increased lending to the real economy.

Hansson said designing such a tool was a challenge.

"I think the challenge of getting this credit channel more active is actually rather high. So I think here there are real questions of possible effectiveness and operational design issues," he said.

(Writing by Eva Taylor; Editing by John Stonestreet)

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article