ECB’s Praet says there is still scope for lower interest rates

The European Central Bank still has room to cut interest rates should the euro area's economic recovery falter, Executive Board member Peter Praet said.

The euro fell for the first time in four days after Mr Praet said there was still scope for lower interest rates. Europe’s shared currency weakened against most of its 16 major peers Friday and pared a weekly gain versus the dollar.

The ECB could cut rates if new negative shocks materialized that would worsen the region's economic outlook, Mr Praet, who is also the central bank's chief economist, said in an interview with La Repubblica published Friday.

“We have not reached the physical lower bound” for interest rates, he said.

The dollar fell earlier this week after Federal Reserve policy makers lowered the US rate path.

The “market is vulnerable” to the comments from Mr Praet “because of the general lack of conviction at almost every turn this year in foreign exchange,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. After the Fed meeting on March 16 “consensus may have swung too quickly the other way.”

The euro fell 0.3 per cent to $1.1282 as of 9.52am London time, paring this week’s gain to 1.1 per cent. It is still set for a third weekly advance versus the dollar.

Bloomberg