Aug. 24 (Bloomberg) -- European Central Bank Governing Council Member Panicos Demetriades said policy makers can’t “rule out” lowering their key interest rate to a new record low even amid signs the euro-area economy is improving.
“That option is still on the cards,” Demetriades said of a rate cut in an interview today in Jackson Hole, Wyoming. “We cannot rule out that possibility although one has to take a look at the new data. That data is more encouraging.”
Demetriades’ comment contrasts with that made Aug. 22 by colleague Ewald Nowotny, who said the recent “stream of good news” from the economy removed any need to pare the 0.5 percent benchmark rate. “I would not see many arguments now for a rate cut,” Nowotny, who heads Austria’s central bank, told Bloomberg Television.
Signs of a split on the 23-member council are emerging as the ECB prepares fresh forecasts for release next month after its economy emerged from the longest ever recession. It grew 0.3 percent in the second quarter from the previous three months and reports this week signaled the return to growth will be sustained as services expanded in August for the first time in 19 months and construction output rose for a third month in June.
“It’s been encouraging, but it’s too early to be sure,” said Demetriades, the governor of the central bank of Cyprus.
With the recovery gaining momentum, ECB officials are seeking to quell any speculation that they will shift to tighter policy prematurely. President Mario Draghi has pledged to keep his main rate at a record low or lower for an “extended period.”
Asked about Cyprus, Demetriades said his recession-hit nation has shown “considerable improvement” after securing 10 billion-euros of aid in March.
“The situation in Cyprus is stabilizing,” he said.
--Editors: Kevin Costelloe, Ann Hughey