(Adds detail, quotes)
HELSINKI Oct 6 The European Central Bank's
ultra-easy monetary policy of low interest rates and aggressive
bond buying is necessary to support the euro zone's economy, ECB
rate setter Erkki Liikanen said on Thursday.
Bond markets have been rattled by speculation the ECB might
reduce the pace of its bond purchases, currently at 80 billion
euros ($89.54 billion) per month, although the central bank says
that has not been discussed by its policymakers.
Governing Council member and Finnish central bank governor
Liikanen said the ECB's policy was needed and concerns that it
is fuelling asset-price bubbles and squeezing bank profits in
some regions should be tackled by other means.
"In order to support the economy and bring inflation back to
its target, (the) monetary policy stance has been
accommodative," the Finnish central bank's governor said at an
event. "This is the backdrop against which the current low
interest rates and the use of unconventional monetary policy
measures are necessary."
Finland's economy has been in the doldrums for the past
decade, hit by a series of factors including the decline of
Nokia's former phone business, a recession in
neighbouring Russia and high labour costs.
The ECB has said its bond purchases are set to continue at
least until March 2017 and the bank is looking at ways to ensure
they can carry on smoothly amid concerns about a scarcity of
bonds to buy in Germany and other countries.
Liikanen acknowledged that ECB bond buying was pushing
investors to seek returns elsewhere, potentially inflating the
prices of some assets, but argued that any excess should be
tackled through specific "macro-prudential" measures.
These include typically include limits on mortgage lending,
aimed at avoiding property bubbles, and restrictions on how much
risk financial institutions can take on.
"Macroprudential tools are the key policy instruments in
this regard," Liikanen said.
Echoing recent comments by senior ECB board members,
Liikanen noted that bank margins were suffering as a result of
the ECB's low interest rates, but said it was the lenders' job
to adapt to the new reality.
"Low rates support the real economy... which directly
supports banks' profits," Liikanen said. "It is also up to banks
themselves to adjust their business models to maintain their
profitability in the changing environment."
($1 = 0.8935 euros)
(Reporting by Jussi Rosendahl; Writing by Francesco Canepa in
Frankfurt; Editing by Catherine Evans)