ECB's Visco hints at lower rates if economy worsens

Sat Dec 24, 2011 7:32am EST
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MILAN (Reuters) - European Central Bank Governing Council Member Ignazio Visco said in a newspaper interview on Saturday that the bank will be attentive to the economic cycle when setting monetary policy, suggesting rates could fall more if the euro zone economy worsens.

The ECB has cut interest rates for two months in a row and this month unveiled a raft of measures to support Europe's cash-starved banks to counter a forecast recession brought on by widespread austerity measures.

"Monetary policy will be attentive to the (economic) cycle. It is thus that we defend monetary stability in the medium-term," the governor of the Bank of Italy, said in the interview in Italian business daily Il Sole 24 Ore.

Visco also said the upward trend in Italian bond yields has been stopped and turned around, even if financial markets remain very volatile.

On Friday, the yield on the 10-year Italian government bond rose above 7 percent, the highest since December 16, and the spread over the equivalent German Bund was more than 500 basis points on worries about the euro zone in 2012.

"All the same the trend for higher yields is stopped and turned around, and today we are well below the highs registered in the last few months," Visco said in the interview in Italian business daily Il Sole 24 Ore.

"Certainly there is a lot of volatility, but we know that confidence on the markets is lost quickly and regained only slowly and with a constant and continuous commitment," said Visco, who is also governor of the Bank of Italy.

Visco said that the Italian government's 33 billion euro ($43 billion) austerity package, approved definitively by the Senate on Thursday, was "indispensable," but he added that structural measures to boost growth and create jobs and wealth should be accelerated.

"It is with policies that sustain growth in a credible way that it will be possible to convince the rest of the world that - as our analyses clearly confirm - our public debt is sustainable," he said.   Continued...