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Negative interest rates effective, but have limits-ECB's Villeroy

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Negative interest rates are an effective tool for central banks in the fight against deflationary pressures although they have their limits, ECB governing council member Francois Villeroy de Galhau said on Monday.

[PARIS] Negative interest rates are an effective tool for central banks in the fight against deflationary pressures although they have their limits, ECB governing council member Francois Villeroy de Galhau said on Monday.

Despite deflationary pressures stemming from low oil prices and a slowdown in emerging market economies, Villeroy said there was no sign of "deflationary dynamics" emerging where falling prices weigh on wages and asset prices.

Though much attention has focused on the ECB's use of negative interest rates, Villeroy stressed that they were one tool among others in a comprehensive package expanded at the governing council's last meeting earlier this month.

"We think that they have been effective, but they naturally have their limits," Villeroy told a conference at the Bank of France, where he is also governor.

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He added that the ECB's governing council had given a strong signal of its "internationally cooperative attitude" by opting this month against a tiering system that would have exempted banks from negative interest rates.

REUTERS

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