European Central Bank Governing Council member Ewald Nowotny said Monday that banks in countries that introduced negative interest rates accepted these, but in a European context such a step requires consideration.
Speaking before students at the Economics University in Vienna, Nowotny, who heads Austria’s central bank, said that the negative rates seen in Denmark and other countries “was accepted in part” by financial institutions.
“The negative interest rate was seen as a kind of insurance premium,” he said. “Whether at the level of Europe this makes sense” is a subject for discussion.
“In this situation where we are now with capacity utilization not fully exhausted … it is right to have low interest rates,” he affirmed after making his prepared remarks.
Europe is in a “situation where we do not have deflation, but long-term low price developments,” he said.
Some citizens, being persistently more worried about inflation than deflation, might be inclined to call this “wonderful,” he said.
“What we are scared of is something else,” he continued, pointing to the deflationary experience of Japan.
“This situation is very difficult to overcome,” he said. Central banks can “put an end to any inflation,” but halting a deflationary trend is less easy.
Nowotny repeated that the ECB has no exchange rate goal, but that developments in this area influence price developments.
A foreign exchange policy like that of the Swiss National Bank “is certainly no alternative for the ECB,” since the “is too big and global a currency for that,” he said.