Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, said Tuesday that the quantitative easing should make sense only when the interest rate is at zero or very close to zero.

In a keynote lecture at the International Center for Monetary and Banking Studies in Geneva, Smaghi said the speed of unwinding of unconventional measures to a large extent depend on their degree of reversibility. According to Smaghi, bringing the main policy rate too close to zero would risk hampering the functioning of the money markets as it would reduce the incentives for interbank lending.

He said the ECB operations eased financing conditions for the private sector and assisted banks to refinance loans more easily. The evidence on the extent of these policy measures on market interest rates and money market conditions is quite encouraging, he stated.

There is also mounting evidence that the Eurosystem's policy measures have been effective in averting a dramatic contraction in credit volumes, though credit developments certainly need a close monitoring in the period ahead, he added.

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