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By Erik Kirschbaum
BERLIN, Nov 25 (Reuters) - The European Central Bank has room to lower interest rates some more, ECB governing council member Axel Weber said in a German newspaper interview to be published on Wednesday.
"There is scope for further interest rate cuts," Weber told Handelsblatt, in to comments published in the newspaper's online edition late on Tuesday.
"The energy prices are falling, the food prices are once again favourable, industrial capacity utilisation is falling," said Weber, who is also president of the German Bundesbank. "That all puts (downward) pressure on inflation."
Two quick-fire 50 basis point cuts since October have cut benchmark euro zone interest rates to 3.25 percent and analysts think they could be cut to 2 percent or lower next year if the region's current recession evolves into a major long-term slump.
Analysts expect a 50-point cut on Dec. 4. [ID:nLP695119]
Inflation eased to 3.2 percent from a peak of 4 percent in June and July and is expected to keep falling as growth and oil prices ease.
In the interview with Handelsblatt, Weber said he saw risks in economic developments and said they are closely linked to falling inflation.
He also expects German inflation to be cut in half in 2009. In October consumer prices rose by 2.4 percent year-on-year.
"There are indeed risks for the economic developments," Weber said. "And these are linked to falling inflation rates."
He said he does not expect deflation to be an issue.
"That's not the basis scenario we have," he said. "We expect the inflation rate in Germany to be cut in half in 2009. In the euro-zone there should be price stability for the medium term.
"Thus, we have the chance to support other goals of economic policy, such as softening the impact of a stronger economic downturn."
Weber said it would be a mistake to predict an imminent end to the global financial crisis and economic downturn.
"The experience to date teaches us not to speak prematurely about a foreseeable end...I think we'll pass through the economic low point sometime next year. There will be a lot of challenges in the first half of 2009."
Weber said the German government needs to take action to stabilise the economy when normal measures fall short.
"If the automatic stabilisers are insufficient, it has to work actively to counter steer," he said when asked what the German government should be doing. Chancellor Angela Merkel has faced criticism for taking relatively cautious steps so far.
"The favourable balanced budget situation makes this possible," he added, referring to the general condition of the state, local and federal governments.
Weber said the budget situation in Germany gave it scope for stimulus measures other countries do not have.
"Some of our larger neighbouring countries have not worked as hard to consolidate their budgets as the German government and that's why they don't have the same scope now. Our starting point is, in contrast, quite a bit more favourable.
"The corporate balance sheets are in solid shape, most of the private households are not swamped with debt."
Weber said any stimulus package the government decides should be "soon, targeted and for a limited time period."