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ECB's Weidmann tempers rate cut expectations


WASHINGTON (Reuters) - European Central Bank policymaker Jens Weidmann still views interest rates as appropriate, he said on Friday, adding that the economy would have to worsen before the ECB should consider another cut.

Earlier this week the euro weakened after markets understood comments made by Weidmann, an arch-hawk on the ECB Governing Council, as an indication that he was open to cutting rates.

On Friday, Weidmann told a news conference in Washington that interest rates were appropriate at the moment, but that the ECB would reassess the situation should economic data weaken.

The potential impact of an interest rate cut should not be exaggerated, he added, as the ECB's monetary policy transmission mechanism is "broken", meaning interest rates are not reaching the real economy evenly across the euro zone.

That could only be addressed by structural reforms, Weidmann said.

The euro rose after Weidmann's comments to $1.3118 from $1.3074 as markets discounted the chance of the ECB cutting rates as soon as next month.

At the news conference, which was jointly held by Weidmann and German Finance Minister Wolfgang Schaeuble, they also said the European Union should move ahead with treaty changes they believed were needed to create a banking union.

Schaeuble said Germany was ready for treaty changes "as quickly as possible".

(Reporting by Gernot Heller; Writing by Stephen Brown, Eva Kuehnen and Sakari Suoninen; Editing by Catherine Evans)