ALPBACH, Austria (Reuters) - Major central banks’ reassurances that interest rates will stay low for some time are giving markets “a certain security”, a European Central Bank policymaker said on Thursday.
Another European official, however, warned against complacency and said it was too soon to say the euro zone crisis was over.
Ewald Nowotny, a member of the ECB’s Governing Council, said the so-called forward guidance from central banks was here because of weak economic growth and high levels of uncertainty.
“That means the central banks are giving markets a certain security that we will have a low level of interest rates for the foreseeable future, no rise but rather steady or lower,” he told a panel discussion at an economic conference in Austria.
“But this forward guidance is not unconditional.”
The ECB has tied its ‘forward guidance’ on interest rates remaining low to the inflation outlook and monetary dynamics remaining subdued - a scenario that shows no sign of changing any time soon.
Non-euro zone Britain’s is tied to unemployment, which the Bank of England also believes will remain stubbornly high for some time.
Nowotny made his comments ahead of an ECB policy meeting next Thursday, when the central bank is expected to leave its main interest rate unchanged at 0.5 percent.
The ECB’s 23 Governing Council members will meet against a backdrop of improving economic data in the euro zone, though the gradual recovery is uneven and led by Germany, where business sentiment hit its highest level in 16 months in August.
Speaking at the same conference as Nowotny, the European Commission’s economic chief said there are signs of a gradual economic recovery in the euro zone but it is premature to say that the crisis is over.
“Let’s be clear, especially in view of the dramatic levels of unemployment in many parts of Europe, there is no room for complacency ... Pronouncements that the crisis is over are premature, to say the least,” Olli Rehn told reporters.
ECB policymakers discussed cutting rates in July but decided against and instead said they would keep them at record lows for an “extended period” - the bank’s first use of forward guidance, which it reaffirmed after its August 1 policy meeting.
Since then, the euro zone economy has shown signs of perking up, with Germany and France hauling the bloc out of a 1-1/2 year-long recession in the second quarter.
Nowotny called the low current interest rates an historical anomaly, but declined to comment on potential monetary steps to exit the ECB’s accommodative stance, citing the quiet period before the central bank’s rate meeting next week.
He stressed that policymakers are operating in abnormal times and that central banks had to intervene massively in the face of an economy on the brink of collapse.
“Central bankers have to have in the back of their heads that we cannot repeat the errors of the 1930s,” he added.
Reporting by Michael Shields and Angelika Gruber, writing by Paul Carrel; Editing by Jeremy Gaunt