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UPDATE 1-ECB's Nowotny: seeing "massive" inflation drop

Published 02/24/2009, 07:59 AM
Updated 02/24/2009, 08:00 AM

(Adds remarks on growth, quantitative easing)

VIENNA, Feb 24 (Reuters) - Inflation is dropping massively and may turn negative in some countries, but for the full year there will be no deflation in the euro zone or in the United States, European Central Bank Governing Council member Ewald Nowotny said on Tuesday.

"We are currently seeing a massive drop in inflation rates," Nowotny said in an Internet chat hosted by Austrian newspaper Die Presse. "In some countries, there could be negative inflation rates temporarily."

"For the full year 2009, deflation is not expected either for the euro zone nor for the United States," he said. "Central banks will do all they can to avoid a 'Japanese scenario', that means stagnation over many years."

Nowotny said the extent of the economic slump underway was unprecedented in the last several decades. He said he agreed with ECB staff economists who expect a turnaround for the last quarter of 2009 and slight growth in 2010.

Nowotny said the ECB's Governing Council was discussing unconventional tactics to expand its monetary policy even in times of near-zero interest rates, but said they were not needed yet because rates were still above zero.

"It's true that the ECB Council is discussing 'non standard measures'," he said.

"For the ECB, this is currently not an issue because rates are still positive. But it is good to think about this anyway. There are no concrete results of this discussion yet."

Nowotny said the Austrian central bank, whose governor he is, did not plan to make special gold sales taking advantage of the current high prices.

Nowotny declined to comment on ECB interest rate policy, pointing to next week's rate-setting meeting. (Reporting by Boris Groendahl; Editing by Victoria Main)

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