BERLIN, June 29 The European Central Bank sees
no acute risk of deflation, Executive Board Member Yves Mersch
said in an interview broadcast on Sunday, but what it does see
is a long period of low inflation ahead.
The ECB's target for medium-term inflation is below, but
close to 2 percent, a far cry from the current level of 0.5
percent, which has sparked concern the euro zone could enter a
Japan-style deflationary spiral of falling prices, slowing
growth and reducing consumption and investment.
"At the moment we see no heightened or acute danger of
deflation, in the sense that consumers would change their
behaviour and postpone making purchases because they expect
prices to fall ... which would create a negative spiral causing
more deflation," Mersch told Germany's Deutschlandfunk radio,
"What we do see is a long period of very low inflation. When
we have such low inflation then the risk is greater, that should
the European economy suffer an unforeseen external shock again,
we have no buffer."
The ECB on June 5 cut interest rates to record lows, the
deposit rate to below zero, and launched a series of steps to
boost lending to companies. The bank's monetary policy committee
is set to meet next on July 3.
Asked about widespread expectations that interest rates will
stay low until 2016, Mersch said: "If everything else stays as
it is today then that could be the model."
"We as a central bank will try to fulfil our aim as quickly
as possible, which is to bring inflation back towards the level
of close to but below 2 percent. But this will take time,
because currency policy takes a while to work through the
different economic structures."
Commenting on the bank's recent measures, Mersch said the
curve for short-term interest rates had moved down by 10-15
"In this respect, our measures have had the desired effect,"
He dismissed fears of an asset bubble building in property
prices or in stocks.
"Just as in Germany you have regions where property is worth
less now, when adjusted for inflation, than 40 years ago, we
also can't speak of an asset bubble on the stock exchange," he
"We could though have a risk of overheating if things
continue as they are."
(Reporting by Alexandra Hudson; Editing by Sophie Hares)