European Central Bank Vice President Vitor Constancio predicted Saturday that the package of measures decided by the Bank at its June monetary policy meeting will prove effective in restoring inflation to its proper range.
Speaking to the press following a meeting between Eurosystem and East Asia Pacific central banks in Bangkok, Constancio said that so far the impact of the measures taken has been as expected, but noted that a key component, the TLTROs, had yet to be implemented.
“Of course we are convinced that the measures that we took in June will be effective,” he said.
Still, he emphasized when asked about the possibility of additional steps – which he declined to speculate about – “for the moment we will wait and see what will be the effect of these measures.”
“The situation we have now in Europe is very low inflation,” he said, with the ECB “far away” from its price stability objective.
“And as a result, with such low inflation, according to our mandate, we have to conduct monetary policy in order to try and foster the kind of economic environment that will bring inflation” closer to 2%.
Since “that implies accommodation,” he argued, currently low interest rates are “totally in accordance with our mandate.”
“We intend to keep monetary policy accommodative in order to produce inflation,” he affirmed.
Asked about the impact to date of the steps taken in June, Constancio said that as anticipated, there has been more activity in the interbank market, with the overnight rate down to very low levels.
“So I would say that the initial effects are in accordance with what we expected, but the important element of the new targeted LTROs is still to come,” he added.
It is “very difficult to speculate” about the possible impact of geopolitical risks, he said.
“Up to now the effects have not been significant,” he said. “If they will stay more or less like this we don’t expect a great impact. But as I said, no one can predict what will be the dynamics.”
There is “potentially a significant risk” from geopolitical hotspots, he conceded, in particular if developments “would impact the price of oil.”
Asked about the impact of low interest rates on asset prices, Constancio made clear that the ECB’s price stability mandate is based on an index of inflation that does not include the price of assets.
In the event of imbalances in asset markets, there are instruments to deal with these, he said, citing by way of example increased capital requirements associated with lending for real estate.
Although the Eurozone has made “big advances” in improving its institutional framework and stressed countries have also managed “significant progress”, he said, “there is no room for complacency.”