ECB says has tools left to act if needed

Wed May 8, 2013 11:10am EDT
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By Sakari Suoninen and Martin Santa

AACHEN, Germany/BRUSSELS (Reuters) - The European Central Bank still has room to maneuver should the euro zone economy continue to worsen after it cut interest rates to a new record low last week, ECB policymakers said on Wednesday.

The ECB cut its main rate to 0.5 percent last Thursday.

Yves Mersch, a member of the ECB's six-man Executive Board, said the bank still had tools at its disposal, but added that it could only spur lending to small euro zone companies in conjunction with other European institutions.

His colleague Joerg Asmussen said the ECB had an open mind about what it could do to revive lending to small- and medium-sized enterprises (SMEs) - a growing concern for the central bank, particularly in the crisis-stricken periphery countries.

"We still have tools in our toolbox, we are not a toothless tiger," Mersch said in a panel discussion in the northern German city of Aachen.

The ECB said last week it had set up a task force with the European Investment Bank (EIB) to assess ways to unblock lending to SMEs, for example by promoting a market for asset-backed securities (ABS) based on SME loans.

ABS would allow banks to pass some credit risk on to other investors, enabling them up to lend more.

The move to promote ABS is controversial, particularly in Germany, as during the financial crisis such securities became toxic due to the default of housing loans that underpinned them.   Continued...