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Sunday, 20 September 2009

Crisis far from over: ECB

LUXEMBOURG - THE global financial and economic crisis is far from over and risks remain despite positive signals, European Central Bank Governing Council member Yves Mersch said on Saturday.

Mr Mersch, who heads Luxembourg's central bank, also cautioned of the dangers of maintaining a low interest rate policy, saying rates should return to a more normal structure once the economy is back on track.

The ECB left interest rates in the 16 countries that use the euro at a record low of 1 per cent this month against a backdrop of improving economic data.

'The crisis isn't over. Problems are still possible,' Mr Mersch said on Luxembourg's 100.7 radio station.

'If things are better at the moment, that's because of the interventions from national budgets as well as national central banks, the liquidity measures and it remains to be seen how the banks will fare without these measures,' he said.

Hundreds of billions of dollars have been injected into the global economy since the crisis deepened last year. Central bankers have warned it would be a mistake to remove these support measures before a full recovery is assured.

World leaders who meet at a summit in the US city of Pittsburgh on Sept 24-25 will agree to coordinate discussion of exit strategies, a source told Reuters on Friday.

Mr Mersch said the ECB was keeping a close eye on the impact of liquidity measures and higher inflation risks.

'We will monitor this closely and as soon as we see inflationary developments we would have to withdraw the money very quickly. But we would be able to do that from one day to the next, because it is short-term money,' he said.

On the ECB's current low interest rate, Mr Mersch said: 'That should not last for too long. As soon as the economy recovers for good, we have to take the necessary measure to get back to a normal rate structure.' The ECB has kept interest rates at a record low of 1.0 per cent since May. -- REUTERS

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