ECB rates cut only after tough wrangling, says Weidmann

European Central Bank governing council member Jens Weidmann said there had been tough wrangling within the ECB before the decision to ease monetary policy and he said it would be absurd to start discussing further measures already.

The ECB cut interest rates to record lows yesterday, launched a series of measures to pump money into the sluggish euro zone economy, and pledged to do more if needed to fight off the risk of Japan-like deflation.

In an interview with Bild newspaper released today, Mr Weidmann, who heads Germany's Bundesbank, said the ECB had had to act because prolonged low inflation harms the economy.

“If the inflation rate is too low for too long, a development looms that could damage the economy and harm all of us,” Mr Weidmann said. “That’s why we acted. We wrangled long and hard about the shape of the measures. It was certainly not an easy decision.”

He said he would always work for price stability when asked why he appeared to be switching sides all of a sudden and backing a loosening of monetary policy.

Low inflation

“But that also means that the inflation rate should not be allowed to sink too low,” he said. “Yes, the central bank is making a lot of money available at low interest rates. But there is no flood of credit in the euro zone. On the contrary.

“Banks are very reserved as far as lending goes and demand for loans from companies is very weak in a number of countries. We did what we could to revive that. The decisive thing is that the economy in the euro zone gains some traction now.”

Mr Weidmann also said it would be wrong to start talking of more ECB moves so soon after this week’s decisions. “The ECB has acted with a very broad set of measures. Now we have to wait and see how the measures take effect. It would be absurd to already start talking now about a further set of measures.”