FRANKFURT (Reuters) - The European Central Bank has a range of options to consider at its June 5 policy meeting and negative interest rates are among them, ECB Executive Board member Benoit Coeure said.
Coeure told Polish newspaper Gazeta Wyborcza in an interview conducted on May 16 that if the uneven pace of the recovery was confirmed and if the ECB saw a risk of inflation being too low for too long, “we can take action in June”.
“We can act in various ways, depending on the situation,” Coeure was quoted as saying, adding that interest rates “are low but they can still go lower”.
Cutting all three interest rates would imply pushing the rate on overnight deposits, now at zero, into negative territory, which would mean that banks would have to pay to park their money at the central bank.
“Negative rates are one of the instruments available to us,” Coeure said, adding that the Governing Council had discussed such a step extensively.
“We are technically and legally prepared for such a possibility. And market participants are well aware that we are contemplating such a move,” he said.
Asked whether negative rates would discourage people from keeping their money in banks, Coeure said that depended on how negative the rates would be and indeed, rates that fell deep into negative territory could have an impact on depositors.
“But a deposit rate slightly below zero does not necessarily imply that depositors would be affected, while still providing incentives for banks to lend more,” he said.
Coeure also said the ECB was keeping an eye on the euro exchange rate and to what degree it was affecting inflation.
“And indeed, the strong euro is contributing to the current low inflation. Consequently, any further strengthening of the euro strengthens the case for more policy action by the ECB aimed at bringing inflation closer to 2 percent,” he said.
Asked about the risk of global currency wars, Coeure said: “As long as the exchange rates are driven by the various countries’ internal situations and domestic monetary policy actions, this is not a currency war but an adjustment of exchange rates to the current policy, stemming from their economic developments,” he said.
“This assumes, of course, that exchange rates will adapt in a flexible way to the changes in economic conditions and monetary policy.”
Reporting by Eva Taylor; Editing by Stephen Powell