A rebound in the euro late last summer, coupled with further falls in the price of oil, partly explains a slowdown in eurozone inflation, the European Central Bank (ECB) said in its economic bulletin yesterday.

The European Central Bank yesterday warned that record low interest rates were putting insurance firms and banks under increasing pressure and warned that any sell-off in stocks and bonds could damage the eurozone’s recovery.

The European Central Bank will next quarter consider buying sovereign debt in relation to the size of each euro member’s economy if current stimulus proves insufficient, vice president Vitor Constancio said.

Europe is not at risk of sliding into full deflation but the current rate of inflation is dangerously low, European Central Bank vice president Vitor Constancio said at the weekend.

European Central Bank vice-president Vitor Constancio said €1 trillion of asset-backed securities (ABS) and covered bonds are eligible for purchase by the institution.

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

The European Central Bank’s willingness to let lenders fail will depend on the funds available to wind them down, analysts said, after the new head of banking supervision said some should go out of business.

ECB vice president Vitor Constancio said the fact that eurozone bank balance sheets will be probed before undergoing a simulated economic downturn later this year makes the test harder to pass.

Agreeing a credit line between a common resolution fund and the ESM will be the most effective way of breaking the bank-sovereign doom loop, according to Finance Minister Michael Noonan.

EUROPEAN Central Bank governing council member Vitor Constancio said surging oil prices may lead to a period of stagflation, when inflation accelerates and economic growth stagnates.