ECB’s Nowotny warns of deflation risk

VIENNA – The European Central Bank is concerned about the risks of deflation or stagnation arising from the current situation of too-low inflation in the euro zone, ECB policymaker Ewald Nowotny said on Tuesday.

“Now we have the problem of too-low inflation which is clearly below the ECB’s target of 2 percent,” Nowotny told a news conference held by the Austrian National Bank, of which he is the governor.

“It’s a double problem,” he said, citing an increasing debt burden as one danger.

“And of course if it actually leads to deflation, through delaying of consumer decisions, delaying of investment decisions, demand weakening, it can lead to a massive stagnation. This is an issue that concerns us at the moment.”

He added that the ECB’s interest rates would remain low for a long time.

“We have to make sure that it doesn’t come to a destabilization of inflation expectations, that deflation expectations don’t arise.” [Reuters]

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