ECB's Nowotny says negative rates necessary to avoid deflation

VIENNA (Reuters) - The euro zone needs negative interest rates to avoid sliding into deflation, European Central Bank Governing Council member Ewald Nowotny said in an Austrian newspaper interview, defending the policy against widespread criticism in Germany.

The ECB kept the cost of borrowing for banks at zero on Thursday and will continue to charge them 0.4 percent for parking money at the central bank.

A slew of German politicians have complained in recent weeks that low interest rates are hurting savers.

But Nowotny defended the policy.

"You have to discuss negative rates in a broad context," the head of the Austrian central bank was quoted as saying by the newspaper Der Standard on Saturday.

They are part of the central bank's efforts to stabilize Europe's economic situation after a severe crisis, he said. "Now it is all about preventing Europe from dropping into deflation."

He said that he would welcome it if interest rates could be raised again "the sooner the better", but that the conditions must be right.

"This will happen as soon as the economy is doing better, business activity picks up and inflation gets higher."

Countering the criticism of low interest rates, Draghi himself said on Thursday that some of it could be seen as endangering its independence, which could delay investment and hence prolong its current policies.

(Reporting by Kirsti Knolle; Editing by Hugh Lawson)

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