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By Francesco Canepa
BRUSSELS, March 31 (Reuters) - It is “legitimate” for the European Central Bank to review its pledge to keep rates at record low levels or even cut them, but it is too early for now to have that conversation, ECB board member Benoit Coeure said on Friday.
Coeure’s comments mark the first time a dovish member of the ECB’s Executive Board and a close ally of President Mario Draghi opened the door to the prospect of gradually ending an era of ultra-low interest rates, if growth and inflation continue to recover.
With the threat of deflation now disappeared, Coeure said the ECB will “at some point” have to discuss whether it still needs to charge banks 0.4 percent on their excess cash, an extreme policy tool known as a negative Deposit Facility Rate (DFR).
“That’s not a discussion that we’ve had so far but it’s a legitimate discussion,” Coeure said at an event organised by think-tank Bruegel. “At some point we’ll have a discussion whether such a low level of the DFR is still needed.”
Inflation in the euro zone has rebounded since late last year but it markedly slowed down again in March, data showed on Friday.
This vindicates the ECB’s cautious stance despite growing calls from countries such as Germany to end its easy policy or aggressive bond purchases and negative interest rates.
Coeure said the ECB’s guidance, which includes buying bonds until December and only raising rates well after that was still valid.
But he cautioned that the order of the moves may change along with economic conditions.
“Ultimately, also the choice of sequencing of policy instruments will be the outcome of our regular assessment,” Coeure said.
He also stressed that he was not in favour of letting inflation, currently at 1.5 percent, rise above the ECB’s target of just under 2 percent just because it had been under that level for years. (Reporting By Francesco Canepa; Editing by Julia Glover)