Potential ECB policies ‘will complement each other’

Vitor Constancio said any policies announced by the ECB in June will complement each other.

“If a set of measures is taken — it’s still to be decided next week — they will all go into the same direction,” the ECB’s vice president said yesterday after the bank published its Financial Stability Review.

“The greatest concern we have as a central bank is indeed the possibility, the risk, that a prolonged period of low growth and inflation will create all kinds of risks.”

The recovery in the eurozone is struggling to gather pace. Lending has contracted for two years, potentially influencing ECB president Mario Draghi’s decision whether to ease policy further to combat inflation that has been at less than half the bank’s goal since October.

The ECB’s Governing Council meets on June 5 in Frankfurt to decide on monetary policy, four weeks after Draghi said officials are “dissatisfied” with the inflation outlook.

Executive board member Yves Mersch said the central bank is working on a package of measures, which could include a negative deposit rate.

“We have made public that we are comfortable acting with both conventional and unconventional measures and that we have room available,” he said.

“Above all, what we have been doing is to broaden our tool box and we will present some of the findings of this broadened tool box to the Governing Council.”

Constancio said the ECB’s ongoing health check of eurozone lenders will ease restrictions on credit. It is reviewing balance sheets to identify capital shortfalls before it becomes the region’s supervisor in November.

In the meantime, increasing provision for impaired assets has weighed on the profitability of banks, Constancio said.

“After that process is completed, and it will be completed with the end of the comprehensive assessment, it means profitability will go up as a consequence, all other things being equal.”

Lending is showing some signs of improvement. Credit supply to firms and households increased 0.2% in April from a month earlier, and the annual pace of contraction slowed to 1.8% from 2.2%.