FRANKFURT May 23 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)