Milan: European Central Bank (ECB) Governing Council Member Ignazio Visco said in a newspaper interview yesterday that the bank will be attentive to the economic cycle when setting monetary policy, suggesting rates could fall more if the Eurozone economy worsens.

The ECB has cut interest rates for two months in a row and this month unveiled a raft of measures to support Europe's cash-starved banks to counter a forecast recession brought on by widespread austerity measures.

"Monetary policy will be attentive to the [economic] cycle. It is thus that we defend monetary stability in the medium-term," the governor of the Bank of Italy, said in the interview in Italian business daily Il Sole 24 Ore.

Visco also said the upward trend in Italian bond yields has been stopped and turned around, even if financial markets remain very volatile.

On Friday, the yield on the 10-year Italian government bond rose above 7 per cent, the highest since December 16, and the spread over the equivalent German Bund was more than 500 basis points on worries about the Eurozone in 2012.

"All the same the trend for higher yields is stopped and turned around, and today we are well below the highs registered in the last few months," Visco said.

"Certainly there is a lot of volatility, but we know that confidence on the markets is lost quickly and regained only slowly and with a constant and continuous commitment," said Visco, who is also governor of the Bank of Italy.

Visco said that the Italian government's €33 billion (Dh158.4 billion) austerity package, approved definitively by the Senate on Thursday, was "indispensable", but he added that structural measures to boost growth and create jobs and wealth should be accelerated. "It is with policies that sustain growth in a credible way that it will be possible to convince the rest of the world that — as our analyses clearly confirm — our public debt is sustainable," he said.

In an interview on Friday, Standard & Poor's top executives said the first quarter of 2012 will be a test for Italy because of the huge amount of sovereign debt it has to refinance.

Refinancing

The record-high yields Italy has paid at recent sales have led to concerns the Eurozone's third-largest economy may have trouble refinancing the more than €150 billion of debt coming due between February and April next year.

Asked about growth and the problem of the economic cycle, Visco said: "This is the reason for which, with the last decisions of the governing board, we have made monetary policy still more accommodating than it was already before."

He added that the ECB does not only respond to short-term inflation trends when setting policy.

A year of complete stagnation awaits the Eurozone economy in 2012, according to a recent Reuters poll of economists.