ECB Executive Board member Joerg Asmussen said that the central bank will stick to its expansive monetary policy for as long as needed, but keeping interest rates on low level for a long period of time, could generate potential risks. Asmussen said the ECB should tread cautiously on the idea of taking its deposit rate into negative territory, which would mean the bank to charge commercial lenders for holding their money overnight.
Such a move could encourage banks to lend out money to the real economy, as it could also have implications for banks core operations and for funding. Negative deposit rates would actually mean commercial banks to pay ECB in order to hold deposits in it. Some experts think that negative rates would cause banks to relocate their fund surplus for purposes, different than storing them as deposits.
As far as fiscal policy is concerned, Asmussen noted that it would be the wrong path governments to exclude certain investments from the budget deficit estimations. He added that EU Stability and Growth pact allowed certain flexibility in fiscal policies. This measure was taken in order to be given time to some countries to reach their deficit goals. It is expected that France, Spain and Slovenia will be provided with more time to diminish their budget deficits to the targeted 3% of their Gross Domestic Product (GDP).
Asmussen also expected Germanys economic growth to be considerably better during Q2, compared to this years first quarter.
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