Bloomberg News

Mersch Says Negative Rate in ECB Toolkit May or May Not Be Used

June 13, 2013

European Central Bank Executive Board member Yves Mersch said that officials haven’t run out of ammunition, are technically ready for negative interest rates, and may or may not use them depending on the economic situation.

“There are constellations conceivable where the Eurosystem could deploy such a negative rate, if it is deemed required by our mandate to safeguard price stability,” Mersch said in Copenhagen today, according to a speech published on the ECB’s website. “Negative rates are in our bag of tools, but may or may not be deployed depending on the economic landscape.”

Mersch’s comments echo those of ECB President Mario Draghi, who has held out the threat of an interest-rate cut that would mean banks are charged for depositing cash at the institution, if the euro-region economy requires it. Both of them have emphasized that such a move risks unintended consequences.

“Theoretically, a negative deposit rate may provide additional accommodation,” Mersch said. “At the same time, possible caveats and unintended side effects of this move have to be kept in mind. In particular, crossing the zero line can set off actions in the market that may run counter to the central bank’s policy-easing intentions.”

Mersch, the former governor of the Luxembourg central bank, said that the current environment “certainly warrants an accommodative policy stance.”

“The ECB has not run out of ammunition,” he said. “But monetary policy has its limits.”

Economic Outlook

Mersch also echoed Draghi’s statement at his most recent press conference on June 6, where the Governing Council noted that the euro-region economy may pick up in the second half of this year.

Conditions in the euro area “show a combination of subdued underlying price pressure, a shallow recovery of economic activity and weak credit dynamics,” Mersch said. “Economic sentiment appears to be slowly picking up from low levels. Looking ahead until the end of next year, the Governing Council expects euro-area export growth to benefit from the recovery in global demand.”

To contact the reporter on this story: Craig Stirling in London at

To contact the editor responsible for this story: Craig Stirling at

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