ECB details bank loan plan to boost eurozone economy and avoid deflation

Now Reading:

ECB details bank loan plan to boost eurozone economy and avoid deflation

Text size Aa Aa

The European Central Bank says it plans to keep interest rates low for an extended period of time as it tries to revive eurozone growth with long term loans offered to banks at low rates.

ECB President Mario Draghi thinks those, and other measures unveiled last month, can stop ongoing low inflation becoming deflation which would stagnate the economy: “In this context, the Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation.”

About to be rolled out are so-called targeted long-term refinancing operations under which the ECB will offer banks four-year loans at low rates, hoping they will use the cash to lend more freely, particularly to small- and medium-sized companies in countries like Greece, Portugal, Spain and Italy

Detailing the loan plan, Draghi said banks must use the new funds to lend or else they will be made to pay back the money.

Banks across the eurozone were still digesting the technical provisions of the ECB’s announcement, and several said it was too early for them to be specific on whether they would use the scheme and if it would help them boost lending.

Bank policymakers have also agreed that if needs be they will go with quantitative easing – essentially printing money to buy government or private debt from banks to keep borrowing costs low and boost spending.

Few analysts expect that to be remotely possible until late this year. The central bank has said last month’s moves could take up to a year to take full effect.

with Reuters