ECB's Nowotny says would not rule out QE, but don't need it yet
VIENNA (Reuters) - European Central Bank policymaker Ewald Nowotny said he would not rule out a quantitative easing (QE) - or money printing - programme to buy sovereign bonds, but the time for such a step has not yet come.
Seeking to head off a drop in inflation expectations, the ECB governing council said earlier this month it was unanimous in its commitment to use unconventional tools - central bank-speak for things like QE - to counter a protracted period of low inflation.
Nowotny told Austrian newspaper Der Standard that purchases of government bonds on the secondary market would be compatible with EU law.
"In principle, I would not rule that out, though the time has not yet come for that," he told the paper in an interview.
Euro zone inflation is now running at 0.5 percent, well below the ECB's target of just under 2.0 percent over the medium term. The central bank wants to avert any drop in inflation expectations that could lead to a prolonged period of so-called "low-flation", or even a drop into outright deflation.
Nowotny, Austria's central bank governor, did not see any imminent prospect in the 18-member euro zone of the kind of deflation that hit Japan in the 1990s.
He pointed to ECB work on measures to guard against such a scenario and structural reforms as reasons for believing the bloc would not suffer a similar fate, though he said the outlook could change if low inflation became entrenched.
"We will only be able to really assess that in June, so I think that until then we should not take any measures," he said. "For the ECB, there is no urgent need for action."
Asked whether an interest rate cut could make sense, Nowotny replied: "The interest rate impact is not very big. But an interest rate cut could be a sensible part of a package."
(Writing by Paul Carrel; Editing by Larry King)
