By Inti Landauro
AIX-EN-PROVENCE, France--European Central Bank executive board member Benoit Coeure says the bank's current monetary policy of interest rates close to zero for a long period increases the risk of asset price bubbles.
Mr. Coeure said the International Bank of Settlements is right to point at the risk that cheap money may generate exuberant rises in some asset prices in the euro zone posing a systemic crisis risk when eventually bursting.
The International Bank of Settlements added to its warnings a call for interest-rate hikes though Mr. Coeure said the ECB wouldn't answer any asset price bubble with higher rates.
"We are totally aware of this risk. We will have to deal with it and we are ready to deal with it with the other tools we have at our disposal," Mr. Coeure said during a lecture in Aix-en-Provence where he attended the annual Rencontres Economiques business conference.
Mr. Coeure's comments echo what ECB's chairman Mario Draghi said earlier this week that the best way to deal with financial instability should be in the priority use of new macroprudential tools and not monetary policy, such as changes in banking regulations, tightening the lending standards that commercial banks use, for instance.
Mr. Coeure added the ECB's commitment to keep its benchmark interest rate close to zero for a long period will eventually likely lead to a divergence with monetary policies in the U.S. and in the U.K.
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(END) Dow Jones Newswires
July 06, 2014 06:08 ET (10:08 GMT)
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