WASHINGTON (Reuters) - The risks to economic growth in the euro zone are now “substantially” to the downside, a top European Central Bank official said on Monday.
Asked if the ECB could reverse this year’s interest rate hikes at its October 6 meeting, Erkki Liikanen, an ECB Governing Council member, stressed that the economic situation has continued to deteriorate since the ECB met earlier this month.
Financial markets already widely expect that the ECB will cut rates next month.
At the last meeting, “We said risks to inflation are balanced and risks to growth are to the downside,” Liikanen said at a discussion organized by the Atlantic Council. “And my personal opinion is that the risks to growth are substantially to the downside.”
However, he also stressed that the bank’s next meeting will be one of the twice yearly meetings away from its Frankfurt base. The ECB rarely moves interest rates when meetings are not in Frankfurt.
“We will discuss monetary policy next time, but in the European Central Bank we actually have the provision that twice a year we are meeting in one of the member countries, and we will be in Berlin.” Liikanen said. “And it happens to be the last monetary policy meeting chaired by Jean-Claude Trichet.”
Trichet’s term as president of the ECB will end at the end of October.
Liikanen, in earlier remarks, said euro money markets had frozen up again in reaction to the latest leg of Europe’s debt crisis, and when asked about possible ECB support he became the latest ECB member to suggest the bank could reintroduce one-year lending operations.
“On the liquidity side in Europe the ECB’s position is very clear, if the banks have collateral we will give them liquidity.”
“During the crisis we went to long-operations... three-month, six-month and even 12-months, we prolonged them, so that is still in our tool box.”
Reporting by Marc Jones; Editing by Leslie Adler