ECB's Villeroy flags risks from negative rates

© Reuters. FILE PHOTO: ECB policymaker Villeroy de Galhau, who is also governor of the French central bank, attends the Paris Europlace International Financial Forum in Tokyo

PARIS (Reuters) – The European Central Bank should look at how to offset the risks from negative interest rates if they have to be used longer than expected, ECB policymaker Francois Villeroy de Galhau said in an interview published on Wednesday.

Villeroy, who also heads the Bank of France, told Portuguese magazine Expresso that negative interest rates had their usefulness but their limits as well.

“If maintained for too long, they could weigh negatively on the profitability of financial intermediation with possible adverse consequences for the smooth transmission of monetary policy,” Villeroy said.

“Hence, if we had to use negative rates for a longer period than expected we should study pragmatically how to mitigate their possible adverse effects on the bank transmission of our monetary policy,” he added.

Villeroy also reiterated that normalisation of the ECB’s monetary policy remained “desirable” despite a downturn in economic growth. He added that the ECB could adapt policy if the slowdown dragged on longer than expected.

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