"A large rate cut could be counterproductive and signal the opposite of what we wish to signal; namely certainty and confidence," Mersch said in an interview with Dow Jones published on Friday. It's not the merely the size of the cut that matters, but how the action fits with the current situation, Mersch added.

The central banker also said that he would not be terribly surprised if the consumer price index contracted for a few months next year, but that the fall would be be a signal of deflation in the monetary union.

I would not rule out that over one or tow months, we might have a falling price index," Mersch said in an interview with the newswire. "We have to look beyond such short-term falls in prices, just as we looked beyond short-term increases when commodity prices spiked," he said.

Turning to economic growth, Mersch said he expects the slowdown to endure for a protracted period of time. However, he hopes that the euro zone will begin to show signs of recovery and return close to potential by the latter part of 2009.

"I see protracted economic developments in unfriendly territory, and this will be the setting for our discussions - the speed and amplitude of the slowdown has been unexpected," Mersch said. "I would hope that, at the end of the year, we would see a return close to potential," Mersch was quoted as saying.

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