Low inflation dangerous for eurozone economy: European Central Bank

FRANKFURT: Stubbornly low inflation represents a danger for the eurozone economy and the European Central Bank must act to bring it back up to sustainable levels, its chief economist said on Wednesday.

"We mustn't allow inflation to remain too low for too long," ECB executive borad member Peter Praet told the weekly newspaper Die Zeit.

"No central bank targets zero inflation in the medium term. In a currency union, a moderate rate of inflation facilitates necessary economic adjustment," Praet argued in comments released ahead of publication on newspaper's new edition on Thursday.

Area-wide inflation currently stands at just 0.7 percent, a long way off the ECB's target of just under 2.0 percent, fuelling fears that the single currency area is on the brink of deflation, a general and sustained fall in prices.

ECB chief Mario Draghi gave a strong hint last week that the bank is preparing possible further rate cuts next month to avert such a scenario.

The decision-making governing council was "dissatisfied" with the current path of inflation and was "not prepared to accept it as a fact of nature," Draghi said.

"We're preparing a range of measures," Praet told Die Zeit. "We could again lend money to banks for a prolonged period, possibly with certain conditions attached. We could also cut interest rates again. A combination of different monetary policy measures is also thinkable," he said.

The ECB's key rates are currently already at all-time lows and more easing would take one of the key rates, the deposit rate, into negative territory for the first time.

That would effectively charges banks to park their money with the ECB. But Praet dismissed suggestions that banks would simply pass on the costs to customers, thereby strangling already stifled demand for credit.

"With the sort of orders of magnitude we're talking about, I don't expect it'll come to that," Praet said.