The European Central Bank is looking for a possible alternative to its current bond-buying program, the Securities Markets Program, or SMP, ECB Governing Council Member Ewald Nowotny told The Wall Street Journal on Monday.
"We are discussing other possible alternatives. This discussion is however not so far along that we could do without the SMP program," said Mr. Nowotny. "That is a discussion that includes all monetary-policy instruments." There is a certain amount of doubt concerning the SMP in the ECB's council, Mr. Nowotny said.
"There is indeed a skepticism about the Securities Markets Program because there is the fear that the market imperfections that we want to correct could possibly appear in other places," he said.
Euro-zone central banks have bought sovereign bonds from the euro zone's indebted periphery countries since last summer to the amount of €217 billion ($274.87 billion) as of Jan. 13. Both the former German central-bank president Axel Weber as well as former ECB executive board member Jürgen Stark left their positions because of these purchases.
"That one needs some sort of intervention is rather broadly acknowledged," Mr. Nowotny said, adding that the ECB has a quantitative upper limit for these bond purchases, but whether the limit is used depends on the situation in the markets. "Purely as a practicality, that must be so. There must be certain guidelines for in what dimensions interventions can take place."
Of the recent downgrades of European countries' sovereign debt by Standard & Poor's Ratings Services, Mr. Nowotny said: "The downgrades were all inclusive, but [they were] very different from each other."
"What is for me personally serious is Italy's downgrade of two notches. Without question, refinancing for the public finances as well as for the banking sector will play an important role in 2012. And this action certainly didn't help." Mr. Nowotny suggested that he doesn't see a larger role for the ECB in solving the euro zone's debt crisis.
"The ECB is the central point for monetary policy in the euro zone according to the EU treaties and the ECB statutes. It isn't the only economic player however," he said, adding that successful economic policy must always be a cooperation between monetary and fiscal policy.
Meanwhile, banks' overnight deposits with the European Central Bank rose to yet another all-time high Monday, reflecting excess liquidity in the financial system and ongoing tensions on interbank markets.
Euro-zone banks parked €501.93 billion in the overnight-deposit facility Monday, up from €493.27 billion parked overnight Friday, ECB data showed Tuesday. The overnight deposit level has been elevated since August 2011, with banks using the ECB to hoard excess cash instead of lending it to one another amid fears over their counterparties' exposure to risky euro-zone sovereign debt.
However, the daily amount deposited with the ECB has risen even further since banks tapped the ECB for a massive amount of liquidity at its first-ever three-year loan in December.
When asked if the ECB was planning any further interest-rate decreases in the near future, the central-bank governor said: "The ECB has taken clear steps not only in terms of interest rate decreases, but also in terms of the very massive broadening of liquidity provision. We are all of the opinion that it is now about capturing the full effect of these measures. In other words, letting these measures fully work and only then setting further measures. For the ECB, it is always true that 'we never pre-commit.' But, at the moment, there aren't any concrete plans," he said.
Mr. Nowotny couldn't exclude the possibility of the ECB using further unconventional measures should a situation arise with deflationary risks.
When asked whether the ECB would be ready to use quantitative easing in this scenario, he said, "We are tasked with preventing price instability whether in the downwards or upwards direction and to implement the corresponding instruments. What they are in the individual cases, is to be determined from case to case," said Mr. Nowotny.
Mr. Nowotny, who is also the Austrian central bank governor, warned against requiring the European Stability Mechanism to have a triple-A rating at any price.
"It is also worth considering, whether a triple-A rating is even necessary for the purposes of the ESM. But that is something one must discuss in detail. It is about giving out cheaper loans than are available on the market, but that doesn't mean that this gap must be so large as it is now," said Mr. Nowotny.
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