ECB's Bini Smaghi Warns Against Cutting Interest Rates Too Much

By Lorenzo Totaro and Gabi Thesing

Oct. 31 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi cautioned against cutting interest rates too much, saying low borrowing costs contributed to the current financial crisis.

``The present crisis is partially due to interest rates that remained at low levels for too long,'' Bini Smaghi said in Rome today. ``At that time, rates were lowered too much in order to stimulate growth. We need to avoid repeating the same mistakes.''

Central banks are cutting interest rates aggressively as the crisis that started with the U.S. housing slump threatens to tip the global economy into recession. The U.S. Federal Reserve this week reduced its benchmark rate to 1 percent from 1.5 percent and economists say the ECB will deliver a half-point reduction at its next policy meeting on Nov. 6.

To contact the reporters on this story: Lorenzo Totaro at in Rome or ltotaro@bloomberg.net; Gabi Thesing in Frankfurt at gthesing@bloomberg.net