Draghi says ECB aware of concern that low rates risk stability

European Central Bank President Mario Draghi said keeping interest rates low for an extended period carries risks that policy makers weighed carefully before they reduced the benchmark rate to a record low.

“I am of course aware that our rate cut raised some concerns,” Draghi said in a speech in Berlin Thursday. “A protracted period of time of low rates creates the scene for risks in financial stability.”

The ECB cut its main refinancing rate by a quarter of a percentage point to 0.25 percent on Nov. 7. It kept the overnight deposit rate for commercial lenders who park excess cash at the central bank at zero. Policy makers are considering a smaller-than-normal cut in the deposit rate to minus 0.1 percent if more stimulus is needed to ward off deflation, according to two central-bank officials with knowledge of the debate.

“Don’t try to infer anything from what I say, anything about the possibility of negative rates,” Draghi said. “This was discussed in the last monetary-policy meeting and there’s no more news since then. Let me make this clear.”

The euro rose a third of a cent after Draghi’s remarks and traded at $1.3456 at 1:28 p.m. in Frankfurt. It fell 0.7 percent Wednesday.

The ECB’s Governing Council gathered in Frankfurt this week for its mid-month meeting. The next interest-rate decision will be announced on Dec. 5.

Draghi said that risks from low interest rates haven’t materialized across the 17-nation euro region so far.

“We may at most see local risks, but local risks of certain specified sectors have to be addressed by local tools, local means,” he said. “Namely, what we call macroprudential instruments.” [Bloomberg]

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