ECB board member: Rate cut remains in our armoury

Europe-European-Flags-EU-700.jpgThe European Central Bank could lower interest rates further if market conditions worsen, a member of the central bank’s board said.

Peter Praet, a member of the executive board of the ECB, told Italian newspaper La Repubblica the central bank could reduce rates further, adding that a reduction “remains in our armoury”.

Last week, ECB president Mario Draghi unveiled plans to cut rates on the bank’s deposit facility by 10 basis points, bringing it down to -0.4 per cent. This means EU lenders effectively have to pay a premium to store money with the central bank.

The ECB also cut its benchmark interest rate by 5 basis points to 0 per cent and expanded its asset purchase programme by €20bn to €80bn, starting from April.

Praet says: “This re-composition of the toolbox does not mean that we have thrown away any of our tools. If new negative shocks should worsen the outlook or if financing conditions should not adjust in the direction and to the extent that is necessary to boost the economy and inflation, a rate reduction remains in our armoury.”

In its statement following last week’s annoucement the ECB said “we expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases”.