ECB's Liikanen warns of asset price bubbles due to low interest rates

BERLIN (Reuters) - A flood of cheap money risks creating bubbles in financial markets if interest rates remain low for a long period, European Central Bank Governing Council member Erkki Liikanen was quoted as saying on Sunday.

"We need to pay attention," Liikanen, also the governor of Finland's central bank, said in an advanced copy of an interview to be published in the Handelsblatt on Monday.

"If interest rates remain very low for a long time there is a risk," he said.

The ECB unleashed its bond buying programme last month which has pushed down market interest rates, encouraging investors to move into riskier assets that will spur growth.

Liikanen said it was important for central banks to set regulatory and supervisory rules to avoid risks, and if necessary, tighten or expand their monetary policy instruments.

He also warned against structural problems in the banking market: "We have to prevent larger banks, which are still benefitting from implied state guarantees, from taking on too much risk."

However he said he saw no cause for a debate on whether the ECB should reduce bond purchases.

"The worst thing would be if we were to hesitate. We have raised expectations and now we must deliver," he said, comparing the ECB's bond-buying programme to a marathon race whose ultimate goal was price stability.

(Reporting by Caroline Copley, editing by William Hardy)