Former European Central Bank Executive Board member Lorenzo Bini Smaghi said the ECB may cut interest rates if the economy doesn’t gain momentum later this year.
“Growth is not picking up,” Bini Smaghi said in an interview with Bloomberg Television from Cernobbio, Italy, today. “If we don’t see prospects for a recovery toward the second half of the year, as is expected currently, some changes in the monetary policy will come.”
The ECB yesterday cut its economic forecasts and now expects gross domestic product in the 17-nation euro area to shrink 0.5 percent this year before growing 1 percent in 2014. Inflation, which the ECB aims to keep just below 2 percent, will slow to 1.3 percent next year, according to the new projections. While lowering borrowing costs was discussed, the “prevailing consensus” to leave the benchmark rate at 0.75 percent, ECB President Mario Draghi said.
Asked whether the reforms passed by the Italian government will help the euro area’s third-largest economy find its way back to economic growth, Bini Smaghi said: “No, I don’t think so.” The country needs “to continue reforms,” he said.
“We are coming out of a huge overhang of debt, so the recovery we know will take time,” Bini Smaghi said.
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