ECB chief warns on risks of low rates
The head of the European Central Bank has outlined the risks of keeping interest rates low for a long periods, suggesting the ECB is unlikely to slash rates further from already record lows.
Speaking to members of the European Parliament in Brussels, Mario Draghi also reiterated the bank’s view on the level of the euro on the foreign exchange markets, saying talk of a currency war was ‘‘really excessive’’.
‘‘Naturally, the ECB is aware of the challenges arising from a protracted period of low policy rates,’’ Mr Draghi said, a week after the bank decided to keep its main interest rate on hold at a record low 0.75 per cent.
He said low interest rates for a long time could harm the returns for savers and investors as well as possibly fuelling bubbles in house prices.
In a low interest rate environment, banks might also have less incentive to monitor credit risk properly ‘‘and may provide too many loans to non-profitable business’’, Mr Draghi said.
He said current interest rates were ‘‘accommodative’’, which analysts often take to mean that the bank is unlikely to cut them further.
Turning to the exchange rate, Mr Draghi said: ‘‘I find really excessive any language referring to currency wars’’ amid concerns that the euro is too strong on the foreign exchange markets and worries over the weak Japanese yen.
He referred to the statement made by the Group of 20 developed and developing countries in Moscow over the weekend, where leading powers vowed they would not target specific forex rates or devalue currencies to make them more competitive.
‘‘I urge all parties to exercise very, very strong verbal discipline. I think the less we talk about this the better,’’ said Mr Draghi.