ECB chief economist says `shocks` could spark more rate cuts

The ECB could further slash its super-low interest rates if the economic outlook worsens, its chief economist Peter Praet said Friday, stressing the bank still has ammunition to fight deflation.

AFP| Updated: Mar 18, 2016, 16:39 PM IST

The ECB could further slash its super-low interest rates if the economic outlook worsens, its chief economist Peter Praet said Friday, stressing the bank still has ammunition to fight deflation.

"We have not reached the physical lower bound" on rates, Praet told Italian daily La Republicca in remarks released by the Frankfurt-based ECB.

"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," he said.

In a bid to revitalise a lacklustre economy and boost chronically low inflation, the ECB last week slashed already record-low interest rates, prepared to pump massive new sums into the banking system and, for the first time, said it would start buying corporate bonds.

The unprecedented package "should bring us close to the 2 percent (inflation) target at the end of 2018," said Praet.

The ECB has battled for years to push inflation back up to levels it believes are consistent with healthy economic growth, to little avail.

In fact, eurozone inflation turned negative last month, as consumer prices declined by 0.2 percent.

Underlining the ECB`s determination, Praet did not rule out deploying the drastic tactic of simply printing money and giving it away to the population -- a measure dubbed "helicopter money".

"The question is if and when is it opportune to make recourse to that sort of instrument which is really an extreme sort of instrument," said the economist.

"There are other things you can theoretically do. So when we say we haven`t reached the limit of the toolbox, I think that`s true."