* Markets react to Draghi comments on potential negative
* Nowotny says cut to sub-zero rates not a short-term option
* Says markets overinterpreted both his and Draghi's
* Mersch says negative rates lie in uncharted waters
By Michael Winfrey and Jan Lopatka
BRATISLAVA, May 3 European Central Bank
policymakers played down on Friday prospects of the bank cutting
its deposit rate below zero any time soon, saying it was just
one of several possible treatments for the sickly euro zone
ECB President Mario Draghi said on Thursday the ECB was
"technically ready" to shift the deposit rate into negative
territory, meaning it would start charging lenders for holding
their money overnight - a thorny issue for already strained
In theory, sub-zero rates would encourage the banks to lend
out money rather than holding it at the ECB, potentially easing
a credit logjam that has impeded growth in the euro zone for
But they would also probably have a big impact on banks' own
operations and major implications for funding and bond markets.
Draghi's comments triggered talk the central bank was
already paving the way for negative rates, driving the euro down
to $1.30 from above $1.32 and sending German Bund futures to a
record high and French and Belgian borrowing costs to
Several ECB policymakers sought on Friday to dampen the
Ewald Nowotny, a member of the central bank's policymaking
Governing Council, said the possibility of negative deposit
rates was part of "open-minded" ECB policy discussions but "not
something that will lead to a short-term result."
But in a sign of the sensitivity of the issue, he accused
markets twice in a matter of hours of reading too much into
The euro rose to a session high against the dollar
after Nowotny, also Austria's central bank chief, said Draghi's
remarks from Thursday had been over-interpreted.
The currency then fell back after an "astonished" Nowotny,
speaking to reporters in Bratislava, said markets had done the
same with his comments on Draghi and Thursday's ECB discussion.
INTO THE UNKNOWN
Yves Mersch, who sits on the six-man Executive Board that
forms the nucleus of the Governing Council, said the ECB would
have to be careful about cutting the deposit rate below zero.
"No large central bank in the world has gone that way, so
obviously we have to be very careful, when we would try to move
into that territory," Mersch told reporters in Bratislava. "It
is not an easy discussion because there are no precedents."
Asked if the ECB could cut its deposit rate soon, Mersch
replied: "When you are in unchartered territory, it is very
difficult to speak about closeness in time."
Draghi said on Thursday a move into negative rates could
have unintended consequences, but said the ECB could cope with
these - a departure from previous statements.
Another ECB policymaker, Finland's Erkki Liikanen, told
Reuters that, while the consequences needed to be assessed, the
Governing Council was "open".
He also noted that Thursday's decision to cut the ECB's main
refinancing rate was taken by consensus rather than unanimously.