The European Central Bank is prepared to cut interest rates deeper into negative territory after unveiling a stimulus package last week, as it remains committed to lifting inflation, according to Executive Board member Philip Lane.
With low inflation and weak growth in the eurozone, the ECB on Sept. 12 lowered its rate on the deposit facility by 10 basis points to negative 0.50%. The rates on the main refinancing operations and the marginal lending facility were left unchanged at zero percent and 0.25%, respectively.
The ECB said rates are expected to remain at their present or lower levels until the inflation outlook converges to its target of close to, but below, 2%.
"We judge that, if needed, we can further lower the deposit facility rate and, with it, the overnight money market rate," Lane, the ECB's chief economist, said in a Sept. 16 speech at Bloomberg in London. "As a result, there is no reason for the distribution of future short-term rate expectations to be skewed upwards."
Lane said the ECB has an "unconditional" mandate to maintain price stability and an "unwavering" commitment to hit its inflation target.
In addition to the rate cut, the ECB also announced the resumption of bond purchases at a monthly pace of €20 billion beginning Nov. 1.
Lane said the ECB is "confident" that the projected purchase volumes would be consistent with the current limits of the asset purchase program "for an extended period of time."
The asset purchase horizon will "adjust dynamically" to changes in the inflation outlook, Lane said.
