Nowotny says would prefer 'package' of ECB measures
By Michael Shields and Georgina Prodhan
VIENNA (Reuters) - An interest rate cut alone will not be enough to deal with persistently low inflation in the euro zone, ECB policymaker Ewald Nowotny said on Monday as the central bank gets ready to add more stimulus as soon as June.
European Central Bank President Mario Draghi said last week the ECB is prepared to take action next month to boost the euro zone economy if its updated staff inflation forecasts merit it.
"If you are perhaps of the opinion that one needs new measures here, it is probably reasonable to put together a package, not (take) a single measure, for instance a rate cut alone," Nowotny told reporters on the sidelines of a conference on banking union.
Inflation has been stuck in what Draghi has called "the danger zone" below 1 percent for seven months in a row and ECB Vice President Vitor Constancio said it was likely to stay there for some time.
Inflation came in below expectations in April and March.
"We need to know better after the low inflation monthly figures that we have had recently what will be the prospects for the medium-term path of inflation," Constancio told reporters at the same conference.
"That will be the main criteria for any decision by the governing council." He said the ECB was considering a wide range of potential action but declined to speculate on just what the central bank may decide at its June meeting.
If price pressures stay low for too long, the ECB fears inflation expectations will drift lower, which could lead consumers and companies to put off purchases and investments, triggering a downward spiral of low growth and weak consumption.
The euro zone's "low-flation" has raised alarm bells elsewhere and the International Monetary Fund renewed its call for action on Monday.
EURO STRENGTH
After hitting 0.5 percent in March, euro zone annual inflation picked up to 0.7 percent in April, still far from the ECB's medium-term target of below but close to 2 percent.
With the euro at multi-year highs against the dollar, which could put downward pressure on inflation through lower import prices and hamper exports for euro zone firms, the ECB has also started to pay closer attention to the euro exchange rate.
Constancio said the ECB was keeping a close eye on the strength of the euro. "It's something of course we cannot ignore and don't ignore but (the exchange rate) is not and cannot be a target for our policy."
His Governing Council colleague Nowotny also pointed to "very strong elements of uncertainty" with regards to inflation.
"One must not forget that one of the main elements of the low inflation is energy prices and food prices, and this might be a very volatile element for inflation."
(Reporting by Michael Shields and Georgina Prodhan; Additional reporting by John O'Donnell; Writing by Eva Taylor; Editing by Catherine Evans)
