ROME, Oct 31: ECB executive board member Lorenzo Bini Smaghi warned on Friday against setting interest rates too low and the Bank of Italy chief said there was limited scope for using monetary policy to boost the economy.

The cautious comments from Italy’s two ECB Governing Council members came ahead of a European Central Bank meeting on Nov 6 where bank President Jean-Claude Trichet has said a rate cut is “possible”.

Economists polled by Reuters expect a half percentage point rate cut to 3.75 percent. It would follow the recent global trend. After a cut by the US Federal Reserve earlier in the week, Japan cut interest rates for the first time in seven years on Friday to 0.30 percent. The Bank of England is expected to follow suit too.

Belgian Central Banker Guy Quaden reinforced expectations for an ECB cut. “The ECB meets next week and another rate cut is a possibility,” he told business daily De Tijd.

But Bini Smaghi, who has also said a cut next Thursday is a “possibility”, injected a note of caution.

“Let’s remember that interest rates in the previous (economic) cycle remained very low, perhaps they got too low in an effort to stimulate the economy at all costs,” Bini Smaghi said at a conference at the Luiss University in Rome.—Reuters