Draghi: ECB Stands Ready To Use Addl. Unconventional Measures

(RTTNews) - The European Central Bank remains ready to use additional unconventional tools to counter risks to the inflation outlook and to boost the euro area economy, ECB President Mario Draghi said on Monday.

In the introductory remarks in a testimony to the economic and monetary affairs committee of the European Parliament in Brussels, Draghi said,"The Governing Council remains fully determined to counter risks to the medium-term outlook for inflation."

"Therefore, we stand ready to use additional unconventional instruments within our mandate, and alter the size and / or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation."

Draghi said the Eurozone economic recovery is losing momentum and there is no indication that the sharp decline in economic activity seen in August has stopped.

"The risks surrounding the expected expansion are clearly on the downside," he said.

"In particular, heightened geopolitical tensions could dampen business and consumer confidence. Risks of insufficient structural reforms could weigh on the business environment."

The central bank chief also said "unacceptably high unemployment" and continued weak credit growth were likely to hurt the strength of the recovery.

The ECB expects inflation to remain at low levels over the coming months, before increasing gradually during 2015 and 2016, Draghi said. The bank will closely monitor risks to price developments, he added.

"We will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate developments and the pass-through of our monetary policy measures," Draghi said.

Last week, banks took up less-than-expected amount of funds at the ECB's first targeted longer term refinancing operation, or TLTRO, damping the hopes of the success of the measure that was aimed to boost liquidity to help revive lending to small businesses and households.

Results of its first TLTRO showed that 255 banks were allotted EUR 82.60 billion, which was below the EUR 100 - EUR 150 billion predicted by analysts. Next TLTRO auction is due in December.

Draghi said the take-up was within the range that the ECB had expected, adding that the September and December operations should be assessed in combination.

"While it is yet too early to assess the impact of the TLTROs on the broader economy, their announcement already had a noticeable positive impact on financial market sentiment," Draghi noted.

"Overall, we expect the TLTROs to act as a powerful tool to strengthen the transmission of monetary policy and facilitate new credit flows to the real economy, given the predominantly bank-based financing structure of the euro area economy."

With the poor take-up of TLTRO funds, the question remains whether the ECB's proposed measure of purchasing covered bonds and asset-backed securities will help it to achieve its goal of expanding the central bank's balance sheet to EUR 1 trillion.