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.
“After the rate cut in June, they’ll wait … probably until the end of the year, to assess the effect that will have,” Berenberg bank economist Christian Schulz said.
Banks will be charged a 10 basis point premium over the ECB’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 behavior this time and steer the money toward company loans instead.
The ECB will publish details of its new long-term loan program for banks later on Thursday.
Big questions remain, one being why banks would be likely to lend more before stress tests later this year at which they must demonstrate they have cleaned up their balance sheets.
“Banks should take full advantage of this exercise to improve their capital and solvency position, thereby supporting the scope for credit expansion during the next stages of the recovery,” Draghi said.
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 U.S. Federal Reserve’s policy gatherings.
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