Bloomberg News

Nowotny Says ECB Rate Cut Was Among Options at Last Meeting

October 21, 2011

(Updates with additional comments starting in sixth paragraph.)

Oct. 21 (Bloomberg) -- European Central Bank council member Ewald Nowotny said officials discussed cutting interest rates at their last policy meeting.

“Of course, we always discuss all options,” Nowotny, who heads Austria’s central bank, told Bloomberg Television in an interview from Vienna today. He said the governing council decided that liquidity provision was the priority.

“We will discuss interest-rate policy again when we have the new forecasts,” he said. The ECB will publish new projections for growth and inflation in December.

Officials resisted pressure to lower borrowing costs this month, opting instead to bolster the banks as Europe’s debt crisis pushed Greece to the brink of a default. The ECB is also at the heart of a spat between the German and French governments over how best to leverage the euro area’s rescue fund.

French officials are insisting the best way to boost the 440 billion-euro ($604 billion) fund is to grant it a banking license so it can refinance itself at the ECB -- an option the central bank and the German government reject.

Strengthening the fund, known as the European Financial Stability Facility, is “not the direct role of the ECB,” Nowotny said. While the ECB can “give some technical advice” on how to structure the EFSF, it does “not have the mandate to intervene in public finances,” Nowotny said.

He reiterated that the central bank’s government bond- purchase program is a temporary measure and cannot be compared with other central banks’ quantitative-easing policies.

Nowotny also said policy makers will “have to take into account” in their next forecasts the fact that “unfortunately there is a tendency of economies weakening worldwide.”

--With assistance from Gabi Thesing in London. Editors: Fergal O’Brien, Jennifer M. Freedman

To contact the reporter on this story: Francine Lacqua in London at flacqua@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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