ECB rates could stay low if other policy areas don't contribute: Coeure

August 27, 2016 12:58 PM EDT

Benoit Coeure, member of the Executive Board of the European Central Bank (ECB), attends a Lamfalussy Lectures Conference in Budapest, Hungary February 1, 2016. REUTERS/Laszlo Balogh

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FRANKFURT (Reuters) - European Central Bank rates could remain low unless other policy areas start contributing, raising the risk that they could increasingly hit their effective lower limit, a top policymaker said on Saturday.

In a largely academic speech, ECB Executive Board member Benoit Coeure also warned the effect of monetary stimulus in such an environment could be weakened and come with increasing side-effects.

"They (stimulus measures) were taken on the implicit assumption that they would be transient," Coeure told the U.S. Federal Reserve's symposium in Jackson Hole.

"But if other economic policies do not in fact play this role, then we cannot exclude that the real equilibrium rate remains low.

"As such, we may see short-term rates being pushed to the effective lower bound more frequently in the event of macroeconomic shocks; and the stimulus provided by lowering interest rates to that level would be of course be much weaker."

The ECB has cut rates deep into negative territory, given banks free loans and buys 80 billion euros worth of assets per month, but inflation has hovered near zero and is likely to undershoot its 2 percent target for at least two more years.

ECB asset buys are scheduled to run out next March but its cautious signals suggest the bank is in no hurry to decide whether to extend or start winding down the program then, suggesting that a decision will be pushed into the fourth quarter.

Coeure noted that a more frequent use of unconventional tools comes with big side-effects, including stability risks, the erosion of proper market pricing and further downward pressure on real equilibrium rates.

(Reporting by Balazs Koranyi; editing by Andrew Roche)

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