ECB ready to use more "unconventional tools" to spur economy

BRUSSELS - European Central Bank (ECB) chief Mario Draghi has said he is prepared to use more unconventional measures to spur growth in the eurozone.

"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," he told MEPs on Monday (18 September).

He said loose monetary policy will only be stopped "when we have complied with our mandate" which is to keep inflation at close to 2 percent. Currently inflation is at 0.4 percent.

The ECB has taken a series of steps since the summer to try and boost the economy and head off deflation, including interest-rate cuts and cheap loans to banks. In early September the Frankfurt-based bank cut rates further and announced it planned to buy asset backed securities (ABS).

However its lending programme was deemed to have faltered when 255 eurozone banks only borrowed €82 billion of the €400 billion available.

Draghi countered that this was "within the range of take-up values" expected by the ECB and said the overall programme should only be assessed in December when the next round of loans comes up.

He suggested that the lack of bank lending to the private sector was partly due to the upcoming financial health checks of eurozone lenders.

But he added that the tests - which sound out if banks will be able to weather future crises - are necessary otherwise the uncleaned "wound" will continue to fester resulting in zombie banks as happened in Japan.

Fielding a question on why the ECB had not spotted the recent meltdown of Portuguese bank Banco Espirito Santo, Draghi said that his institution will only take over the supervision of 120 major eurozone banks on 4 November something he qualified as the "biggest step of European economic integration since the inception of the euro".

He argued that the troika, the trio of lenders to Portugal, had created better standards which allowed for the bank's difficulties to be spotted.

He finished his presentation on the same note that he has struck for several months - that ECB monetary needs to be complemented by structural reforms in member states.

"The success of our measures critically depends on a number of factors outside of the realm of monetary policy.

Courageous structural reforms and improvements in the competitiveness of the corporate sector are key to improving business environment."