FRANKFURT: The European Central Bank needs to be ready to act given a challenging environment and it still has room to lower interest rates, even if that could pose a challenge to financial stability, Christine Lagarde, the bank's future president said.

"The ECB has a broad tool kit at its disposal and must stand ready to act," Lagarde, who has been nominated to succeed Mario Draghi from November 1, said in written answers to the European Parliament's committee on economic affairs.

"While I do not believe that the ECB has hit the effective lower bound on policy rates, it is clear that low rates have implications for the banking sector and financial stability more generally," she added.