HELSINKI, June 9 (Reuters) - European Central Bank interest rates are not necessarily at their lowest level, ECB Governing Council member Erkki Liikanen said on Tuesday.
Speaking at the Bank of Finland's quarterly news conference, Liikanen also brushed off comments by fellow policymaker Juergen Stark that the ECB would raise interest rates as soon as the economy begins to recover.
"We never precommit on rates," he said, when asked about Stark's comments. [ID:nL8122961] "We have not taken the decision that this is the lowest level."
The ECB kept its interest rates on hold at a record low 1.0 percent at its June meeting, having cut 325 basis points from credit costs since last October, and analysts expect it has reached the lowest point in the rate cycle. [ECB/INT]
Low inflation has given the ECB room on interest rates, which were at exceptionally low levels. "The alleviation of inflation pressure in the euro area has given room to the ECB ... when economic development has significantly weakened," he said.
Liikanen added that financial markets have shown some progress, but warned against too much optimism.
"Financial market conditions have also improved modestly," he said, but added: "The global financial system is severely damaged, and its operability is still very limited.
He pointed to rising unemployment as a potential source of further banking losses. "There are concerns that the growth of credit losses, triggered by unemployment and bankruptcies, will again start to erode the position of financial institutions and their ability to extend credit," he said.
There were some signs the worst of the global downturn was past but the economic recovery was likely to be slow, he added.
"Recently, there have been some signs of a stabilisation of the economic situation," Liikanen said. "Even if we may have passed the phase of sharpest declines in output, no rapid recovery in the world economy is in view."
The Bank of Finland said in its quarterly report, published in parallel with Liikanen's comments, that there was no fear of deflation in the euro zone.
"There are no signs of long-term and wide-spread decline in prices. Also the long-term inflation expectations in the financial markets do not point to falling prices," it said.
Subsiding fears of deflation, along with improved confidence and a rise in public sector borrowing, have also contributed to higher long-term interest rates, the Bank of Finland said. (For highlights of Liikanen's and Bank of Finland's comments, double click on [nL9405365]) (Reporting by Brett Young, writing by Sakari Suoninen, editing by David Stamp)