ECB keeps euro zone rates at record lowsThursday 03 July 2014 18.46
A raft of policy measures introduced last month will help lift inflation and support bank lending but the European Central Bank stands ready to create money in future if required, President Mario Draghi has said.
The ECB left interest rates steady a month after cutting them to record lows and pushing the deposit rate into negative territory for the first time.
This means it effectively charges banks for holding their money overnight to prompt them to lend to businesses.
The measures unveiled in June also included extending the duration of unlimited cheap liquidity for banks until the end of 2016, and offering them a four-year loan plan.
Draghi said last month's measures had further loosened the euro zone's monetary policy stance.
"The monetary operations to take place over the coming months will add to this accommodation and will support bank lending," he told a news conference after the ECB left its key rate at just 0.15%.
"As our measures work their way through to the economy, they will contribute to a return of inflation rates to levels closer to 2%," Draghi said.
The euro zone inflation rate held at 0.5% last month, well below the ECB's target of close to but below 2% and in what Draghi has called the "danger zone".
If people and firms began deferring spending plans on the basis that they expected prices to fall, an economic downward spiral of the sort suffered by Japan could take hold. The ECB said its sees no sign of that.
Draghi said the ECB's Governing Council was united in its willingness to launch into quantitative easing - essentially creating money to buy government or private debt from banks to keep borrowing costs low and boost spending - if inflation headed lower still. He added that risks to economic recovery remained primarily negative.
"The Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation," Draghi said.
Few analysts expect that to be remotely possible until late this year. The central bank has said last month's moves could take up to a year to take full effect.
Banks will be charged a 10 basis point premium over th eECB's main funding operations for the TLTROs, or targeted long-term refinancing operations.
By offering banks the four-year loans at low rates, the ECB hopes to entice banks to lend more freely, particularly to small and medium-sized companies in the euro zone periphery.
Banks used large parts of the last round of cheap ECB funding in 2011/2012 to buy higher-yielding government bonds and the question is how the ECB will avoid similar behaviour this time and steer the money towards company loans instead.
EBC meetings to move to six week schedule
The ECB chief said the central bank would move to a schedule of six-weekly rather than monthly meetings from next year, mirroring the frequency of the US Federal Reserve's policy gatherings.
The ECB has usually held rate-setting meetings on the first Thursday of every month. But the complexity of the situation in the euro zone since the outbreak of the financial and debt crisis and the enlargement of the single currency area is forcing the ECB to adapt, Draghi explained.
The ECB wanted to stamp out expectations on the part of the financial markets for action every time the central bank's governing council met, he said.
"Our job isn't finished, not at all. But the issue is whether we should have each and every month expectations of action," he said. Those expectations in themselves could trigger market behaviour "which has nothing to do with fundamentals," he said.
"Our monetary policy measures are not taken on the basis of short term considerations. The monthly frequency was simply just too tight.," the ECB chief added.
The ECB will also start publishing regular minutes of it smeetings, as the Fed and Bank of England do. It said the publication of the accounts will be timed so that the account of the previous meeting is published before the date of the next one.