Negative rates must to shun deflation

Vienna / Reuters

The euro zone needs negative interest rates to avoid sliding into deflation, European Central Bank (ECB) Governing Council member Ewald Nowotny said in an Austrian newspaper interview, defending the policy against widespread criticism in Germany.
The ECB kept the cost of borrowing for banks at zero on Thursday and will continue to charge them 0.4 percent for parking money at the central bank.
A slew of German politicians have complained in recent weeks that low interest rates are hurting savers.
But Nowotny defended the policy.
“You have to discuss negative rates in a broad context,” the head of the Austrian central bank was quoted as saying by the newspaper Der Standard on Saturday. They are part of the central bank’s efforts to stabilize Europe’s economic situation after a severe crisis, he said. “Now it is all about preventing Europe from dropping into deflation.”
He said that he would welcome it if interest rates could be raised again “the sooner the better”, but that the conditions must be right.
“This will happen as soon as the economy is doing better, business activity picks up and inflation gets higher.”
Countering the criticism of low interest rates, Draghi himself said on Thursday that some of it could be seen as endangering its independence, which could delay investment and hence prolong its current policies.
ECB is the central bank for the euro and administers monetary policy of the Eurozone, which consists of 19 EU member states and is one of the largest currency areas in the world. It is one of the world’s most important central banks and is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU).
The capital stock of the bank is owned by the central banks of all 28 EU member states. The Treaty of Amsterdam established the bank in 1998, and it is headquartered in Frankfurt, Germany. As of 2015 the President of the ECB is Mario Draghi, former governor of the Bank of Italy, former member of the World Bank, and former managing director of the Goldman Sachs international division (2002–2005).