ECB's Mersch plays down rate cut prospects

FRANKFURT (Reuters) - ECB governing council member Yves Mersch has played down the prospect of further interest rate cuts, saying in a newspaper interview that the usefulness of additional cuts was limited in the current environment and could even do damage longer term.

Mersch, who is in the race to succeed Jose Manuel Gonzalez-Paramo on the ECB's Executive Board from June, told Germany's Sueddeutsche Zeitung that the interest rates were playing a less important role at present.

"Because of the many special measures (the ECB has taken), it appears that the role of interest rates is not so prominent anymore," he said.

"Negative real interest rates over a longer period not only diminish wealth - they put in question the effectiveness of money market funds, which have so far provided short term liquidity," he added.

Economists expect the ECB to cut interest rates to 0.75 percent in the next couple of months and some believe they could go as low as 0.5 percent before the middle of the year.

Mersch, whose hopes of securing an ECB Board seat depend on backing from Germany, toed the German line on the ECB's controversial purchases of government bonds.

"The purchases of government bonds may have worked temporarily as a stopgap, but they have no long-term future," Mersch was quoted as saying.

Asked whether the ECB was discussing alternatives to the program, he said: "The ECB is always assessing the options. However, new options need to be thoroughly thought through. Above all, they must fit the needs of the currency union."

The ECB has bought almost 220 billion euros in government bonds since it started its Securities Markets Programme back in May 2010. The bank remains deeply uncomfortable with the purchases, however, raising questions about its future.

(Reporting By Frankfurt newsroom. Editing by Jeremy Gaunt.)