FRANKFURT The European Central Bank has not run out of options yet and will take action if necessary, ECB Executive Board member Sabine Lautenschlaeger told the Wall Street Journal.
The ECB left interest rates unchanged at a record low of 0.25 percent at its March policy meeting last week and unveiled no other measures to bolster a fragile euro zone recovery despite forecasting low inflation for years to come.
"We have room left to act," Lautenschlaeger said in her first interview since taking the job on the ECB top board in January, having been vice president of Germany's Bundesbank.
"The deposit rate could be negative, for example. That's at least a possibility depending on whether the underlying factors we observe would call for this sort of measure," she said.
Cutting the rate below its current level of zero would mean charging banks for parking their deposits at the ECB overnight, in the hope they would instead lend some of the money to firms and consumers.
The ECB could also suspend its weekly withdrawal of money it spent on Greek and other government's bond during the debt crisis, launch another long-term refinancing operation "with a more targeted approach" or tweak its collateral framework.
"We will act should we observe rising concerns about medium-term price stability," Lautenschlaeger said, adding that inflation expectations were firmly anchored in the medium term and that there had been no reason to act last Thursday.
"The output gap we acknowledge by our forward guidance: Interest rates will remain at the present level, or even lower, over a longer period of time and well into the recovery," she said.
Having worked at the Bundesbank, which opposed the ECB's yet-to-be-used government bond purchase program, dubbed OMT, Lautenschlaeger was asked for her own position on the matter. "Overall, I am a little bit critical about the incentives structure offered by the OMT. I do see some legal questions coming up."
Turning to plans to revive the asset backed securities market, Lautenschlaeger said she would ask the Basel Committee and the Financial Stability Board to revisit a decision to strengthen capital requirements for ABS to check whether these "are justified or too high".
To read the full interview, click on: here
(Reporting by Eva Taylor)