Weidmann says ECB may cut rates if economy weakens - WSJ

FRANKFURT (Reuters) - The European Central Bank could reduce interest rates further if economic data warrants it, ECB Governing Council member Jens Weidmann was quoted by the Wall Street Journal as saying on Wednesday, sending the euro sharply lower.

The ECB decided to leave interest rates on hold at its April policy meeting, but ECB President Mario Draghi said the bank would "monitor very closely" all data and stand "ready to act" to boost the recession-hit euro zone.

While the Bundesbank president cautioned that an interest rate cut might not have a huge impact on the economy, markets took his words to solidify the view that the 17-country bloc's central bank was ready to cut rates from the already record-low level of 0.75 percent.

When asked about interest rates, Weidmann told the Wall Street Journal: "We might adjust in response to new information," but added "I don't think that the monetary policy stance is the key issue".

The euro traded at a session low of $1.3046, down about 1 percent and also hit a session low against the Japanese yen. German government bond futures rose to a session high after the interview was published.

"Weidmann's statements have such a large impact on the euro, because he is such a heavyweight on the Council," a Frankfurt-based money market trader said. "People listen to him when he says something to that effect, twitch and push the sell button."

Data on Tuesday showed that inflation in the euro zone eased to 1.7 percent in March, and the ECB, in its staff projections, sees it falling further. The ECB targets inflation of below, but close to 2 percent.

Analyst and investor sentiment in Germany, the bloc's largest economy, fell sharply in April, separate data showed on Tuesday.

Weidmann, seen as one of the foremost inflation hawks in the ECB, also warned against declaring the sovereign debt crisis over.

"The calm that we are currently seeing might be treacherous," he warned, adding that it could delay government and EU reform drive.

(Reporting by Sakari Suoninen and Eva Kuehnen, additional reporting Andrea Lentz; Editing by Toby Chopra)