Risks to economy have undoubtedly increased, ECB's Villeroy says

Risks to the economy had increased, a member of the European Central Bank’s governing council said on Wednesday.

In testimony delivered to the French parliament’s Finance Commission, Francois Villeroy de Galhau, said the outlook for the economy had “undoubtedly increased”, Market News International reported.

That was the result of the oil price drop, the slowdowns in economic activity in China and other emerging markets and the more uncertain prospects for growth in the States.

He did not believe it was correct to assert the euro area had fallen into deflation, although excessive pessimism on the price front might need to be addressed, he said.

“Temporarily negative inflation [in the euro area] was not deflation.”

Indeed, he expected Eurozone consumer prices to turn slightly positive in the second half in the year.

Nonetheless, “it is necessary to prevent expectations about future inflation from becoming too pessimistic," he added.

With that aim in mind, he said the ECB stood ready to use its “palette of instruments, if necessary,” when it next met.

When queried on the subject of using negative interest rates to stoke economic activity, he said: "I would underline in this regard that negative interest rates - which are raising many questions - are not an end in themselves and that the Eurosystem has at its disposal a range of other non-conventional instruments."