VIENNA - European Central Bank council member Ewald Nowotny warned against raising interest rates and ending emergency policy measures too soon, saying the top priority must be to revive economic growth in the euro region.
Nowotny’s remarks contrast with those of fellow ECB council members including Germany’s Axel Weber, who has repeatedly said the bank should raise interest rates and withdraw extra liquidity quickly once the economy starts to gather strength.
The ECB on June 4 kept its benchmark rate at a record low of 1 percent. It has announced plans to purchase 60 billion euros ($83 billion) of covered bonds and loan banks as much money as they need for up to 12 months to counter the worst economic slump since World War II.
"What the ECB is doing is adequate for the time being," Nowotny said. The bank will monitor the impact of the measures and "if necessary, there will be adjustments," he said, adding that he sees no need for additional action at the moment. "The banking sector is more or less under control, but there still is a very intensive crisis of the real economy."
The ECB expects the euro-region economy to contract about 4.6 percent this year and around 0.3 percent in 2010. ECB council member Athanasios Orphanides on Monday cautioned against reading too much into signs of stabilization, saying there is no evidence yet that the world is emerging from the recession.
Nowotny called the slump "a very deep depression" and said Europe needs "active monetary and active fiscal policy." Considering exit strategies too early "would be very dangerous," he said.
Speaking at the same conference, ECB Executive Board member Gertrude Tumpel-Gugerell said central banks should act preemptively to be able to prevent asset-price bubbles from forming.