Draghi: ECB ready to act if market rates rise too high

Fri Oct 11, 2013 3:06pm EDT
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WASHINGTON (Reuters) - European Central Bank President Mario Draghi said the central bank is looking carefully at money market interest rates and is ready to act if they rise too high.

The ECB has expressed worries that rising money market interest rates could choke off a nascent euro zone recovery.

To reduce volatility and keep a lid on market rates, the ECB abandoned in July its traditional policy of never pre-committing on future rates, saying it would keep its interest rates at present or lower levels for an "extended period" - its first use of forward guidance.

Draghi repeated that guidance in the speech given at the International Monetary Fund's annual meetings in Washington.

"With regard to money market conditions, the ECB will remain particularly attentive to developments which may have implications for the stance of monetary policy and is ready to consider all available instruments," Draghi added in a statement dated Saturday, but made available on Friday.

The economic assessment provided by Draghi followed very closely the Governing Council's opening statement published after the ECB's October 2 policy meeting, when the central bank kept interest rates on hold at record-low 0.5 percent.

Draghi also said the ECB was also seeking ways to ensure low interest rates profit all euro zone countries. Small firms in particular still have to pay much more for a loan in the debt-ridden south than in core euro zone countries, a development which has caused headache for the ECB.

"We will remain attentive to all developments that influence an adequate transmission of monetary policy to the financing conditions in euro area countries," Draghi said.

Turning to the planned euro zone banking union, the central bank chief said the upcoming bank balance-sheet examination by the ECB will be "an important confidence-building tool".   Continued...

Mario Draghi, President of the European Central Bank, addresses the Economic Club of New York luncheon in New York City, October 10, 2013. REUTERS/Mike Segar