ECB official sees euro zone recovery signs

BRATISLAVA: The euro zone economy should show signs of recovery in the first quarter of the year, a European Central Bank policymaker predicted on Tuesday, and another said a small interest rate cut might have little effect.

After the first quarter, the economy should show very gradual improvement, Joerg Asmussen, a member of the ECB's Executive Board, told journalists on the sidelines of a conference.

"As we see incoming indicators I would expect the first quarter to be stronger, that we see again positive signs in the euro area," Asmussen said.

"We expect a very gradual recovery over the course of the year," he said. "We can be cautiously optimistic, but it is key that we show perseverance and that we focus on important things, that is fiscal consolidation, structural reforms and banks' balance sheet repair in countries where this is needed."

Asked what the ECB could do if euro zone inflation dropped below the target of below but close to 2 percent, Asmussen referred to the next update of the central bank's staff forecasts in March and reiterated: "Our monetary policy is accommodative."

Christian Noyer, who sits on the ECB's Governing Council and heads the Bank of France, told the Wall Street Journal in an interview there was no particular interest in cutting interest rates by a few cents if it only impacted Germany and core countries.

Noyer said the level of excess liquidity in the banking system was still "very significant" and would remain so even after banks payed back further three-year crisis loans they borrowed from the ECB about a year ago.

Turning to exchange rates, Asmussen stressed the ECB had no exchange rate target and that these should be market based.

Noyer added that the rise in the euro exchange rate might push inflation lower, although he said he expected the common currency would not rise further, following the statement by 20 industrialised nations that they commit to currency rates being determined by markets.

The euro zone slipped deeper into recession in late 2012 than had been expected, data showed last week, which together with a stronger euro against other major currencies raised speculation whether the ECB may have to do more to boost growth.