Constancio Says ECB Ready to Act Swiftly Against Low Inflation

The European Central Bank is ready to act “swiftly” if needed to counter the risk of persistently low inflation in the euro area, Vice President Vitor Constancio said today in Brussels.

“We are resolute in our determination to maintain a high degree of monetary accommodation,” Constancio said during the presentation of the ECB’s annual report to the Committee on Economic and Monetary Affairs of the European Parliament. “We are ready to act swiftly if needed, and the Governing Council has stated unanimously its ‘commitment to using also unconventional instruments within our mandate to cope effectively with the risks of a too prolonged period of low inflation.’”

Constancio’s comments come after ECB President Mario Draghi said on April 3 that the ECB is ready to make large-scale asset purchases in its fight against deflation in the 18-nation currency bloc, leaving analysts and investors guessing which form quantitative easing policy makers may deploy in the fragmented euro area. The central bank has simulated the impact of a 1 trillion euro ($1.4 trillion) program on prices, a person with knowledge of the matter told Bloomberg News on April 4.

Constancio said the provision of long-term loans to euro-area banks at the height of the crisis didn’t fuel prices.

“The high levels of inflation that some voices predicted never materialized, and we are now in a regime of low inflation,” he said. “We continue to stand ready to take measures to ensure stable money-market conditions.”

Credit Supply

Constancio also highlighted progress made in establishing a banking union in the region. “Ensuring that the European banking sector is sound and safe” will create the conditions for a “revival of credit provision to the real economy,” he said.

The ECB is currently conducting a three-stage review of banks’ balance sheets before becoming the currency-bloc’s single bank supervisor in November.

“We are very conscious of the huge responsibility that we have been asked to shoulder, and this exercise will be executed in a credible and consistent manner,” Constancio said. “Let me assure you that we will under no circumstances compromise the rigor of the comprehensive assessment.”

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