ECB has easing bias, not out of ammunition: Praet

Tue Aug 6, 2013 6:52am EDT
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FRANKFURT (Reuters) - The European Central Bank's interest rates have not hit their lower bound and fresh cuts are an option, policymaker Peter Praet said, stressing the ECB's "easing bias" after chief Mario Draghi left markets puzzled last week.

Praet, who holds the influential economics portfolio on the ECB's Executive Board, wrote in a column for policy research portal Vox that the ECB has "not run out of ammunition".

His comments underpinned demand for most euro zone bonds, highlighting the readiness of at least some ECB policymakers to consider a fresh cut in interest rates as weak lending data offsets promising euro zone economic reports.

The Belgian generally leans towards the ECB's dovish camp.

Draghi was guarded last Thursday when pressed on whether ECB policymakers discussed a cut at their monthly meeting, saying they only discussed forward guidance and were unanimous on that, although he noted rates had not reached the zero bound.

Praet, while stressing that "our forward guidance does not promise irresponsibility", made clear that the euro zone's central bank had further scope to act.

"Against the conditions that we see prevailing over a meaningful horizon, our guidance includes an easing bias," he wrote in the Vox column, dated August 6.

"This conveys the notion that we have not reached the lower bound on our key interest rates," he added. "We have not run out of ammunition. Further cuts in policy rates remain an option for the ECB if the outlook on price stability so warrants."

Praet's views carry weight because he makes a presentation on the economy at the beginning of Governing Council meetings that forms the basis of the policy discussion.   Continued...

European Central Bank Executive Board member Peter Praet gives a speech during a meeting organised by the Grand Conferences Catholiques in Brussels January 14, 2013. REUTERS/Eric Vidal