Update 2-ECB's Nowotny- ECB could use unconventional policy

NEW YORK, April 27 - Euro zone interest rates will stay low for some time and the European Central Bank is ready to use unconventional policy if needed to ensure access to credit, an ECB governing council member said on Monday.

"We will keep the interest rate very low for as long a time as is required and stand ready to use unconventional measures of quantitative easing to assure European firms and consumers access to credit at appropriate conditions," the member, Ewald Nowotny, said in prepared remarks at the Austrian consulate.

The ECB meets in early May and markets expect it to cut the benchmark interest rate from 1.25 percent to 1 percent, while markets are also on alert for signs of unorthodox measures.

Other central banks, including the U.S. Federal Reserve, have cut rates to or near zero and adopted quantitative easing policies such as buying corporate or government debt.

Nowotny did not deliver the prepared speech in full, however, and in a question-and-answer session, said he would not comment on steps the ECB might take at its May 7 meeting.

Nowotny, who is also governor of the Austrian central bank, also stressed that the ECB would do what is necessary to stabilize inflation expectations and said fiscal policy is also important for helping the economy recover.

In answer to a question, he said he did not see deflation as a threat and pointed to the ECB's low deposit rate as another important factor helping to stimulate growth.

The deposit rate stands at 0.25 percent, well below the 1.25 percent benchmark refinancing rate that banks charge each other for overnight loans.

He welcomed the International Monetary Fund's role in making money available to struggling countries in and on the fringes of the 16-country euro zone but added that "some additional discretionary spending is needed."

Helping EU states that are struggling will make the entire bloc stronger, he said.

Austrian banks are among the most heavily exposed to East European economies, many of which have fallen into a deep recession as credit dried up, but Nowotny said the investments were diversified.

"When it comes to Central and Eastern Europe, you have to differentiate," he said, adding the region will eventually recover and post growth rates in excess of those in the United States or Western Europe.

Roughly 55 percent of Austrian banks' foreign assets, worth 200 billion euros, are in Central and Eastern Europe, he said.

Nowotny also called for more integrated global regulation and said any institution, not just commercial banks, that can damage the financial system should be regulated.

"I think with respect to highly-leveraged institutions such as hedge funds, the need to regulate them has become common sense," he said.

"The time for deregulation is over," he said in answer to a question.