MUNICH (Reuters) - The most prominent hawk on the European Central Bank's board defended the bank's ultra-loose monetary policy on Monday, but added that she was skeptical of further interest rate cuts or other forms of easing.
Sabine Lautenschlaeger's comments were likely to be read as an indication she might oppose extending the ECB's monthly bond-buying program much beyond its March deadline - a decision the ECB will make at its meeting in a month's time.
The former head of Germany's financial regulatory agency defended the ECB from criticism in her home country that ultra-low rates have hurt banks and savers, arguing its policy was well-suited to current economic conditions. But she opposed any further easing.
"The phenomenon of low interest rates is more complex than the debate in Germany would suggest," Lautenschlaeger told an audience in Munich.
"But that doesn’t change the fact that I’m very skeptical as far as further interest rate cuts or additional expansionary monetary policy measures are concerned – over time, the benefits of these measures decrease, while the risks increase."
She spoke hours after a top Bank of Italy official said the ECB was not considering reducing the 80 billion-euro ($88.28 billion) monthly pace of the program and was looking instead at how far to extend it after March.
Central bank sources told Reuters late last month that the ECB is nearly certain to continue buying bonds beyond March and to relax its constraints on the purchases to ensure it finds enough paper to buy.
But investors no longer expect the ECB to cut interest rates again this year, as data points to a pick-up in the economy and the central bank has signaled a reluctance to lower borrowing costs deeper into negative territory.
Reporting by Francesco Canepa; editing by Larry King