European Central Bank President Mario Draghi said on Wednesday that euro area interest rates are set to remain low for a long period of time and the bank is ready to use all possible tools to bring inflation back to the 2 percent target.
"Monetary policy will stay accommodative for a long time and I can say that the Governing Council is unanimous in its commitment to use the available instruments within its mandate to bring inflation back to close but below 2 percent," Draghi said in an interview to Europe 1 radio.
"Interest rates will stay at the present level for an extended period of time because they can't go much lower than that," he said.
Early, this month the ECB reduced interest rates to a record low, taking the main refinancing rate to 0.05 percent.
The central bank do not see any risk of deflation for the Eurozone, he reiterated. The risk that the currency bloc faces is that of "too low inflation for too long a time", he added. Inflation remained stable at 0.4 percent in August.
Eurozone "recovery is modest, weak, uneven, and fragile, but it's not recession", Draghi asserted. The economy stalled in the second quarter after a 0.2 percent expansion in the previous three months.
Further, Draghi reiterated that monetary policy alone cannot bring economic growth. The main danger facing Europe is unemployment, he added.
Structural reforms were crucial for producing growth, Draghi said and sought an abolishment of bureaucracy. He said, "The risks of doing too little are bigger than the risks of doing too much."
He also pointed out that credit was a "necessary but not sufficient condition to have growth".
Draghi urged governments to respect the EU budget rules under the Maastricht treaty and pointed out that many Eurozone countries were caught off guard during the financial crisis.
Asked whether the weakness in euro would continue, Draghi said the exchange rate movement reflects the different path of monetary policies in Europe versus the monetary policies in other important countries.
"Our monetary policy will stay accommodative through time for an extended period of time while other countries' monetary policies may gradually acknowledge that recovery is taking place in their countries", he 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 earlier this week that the take-up was within the range that the ECB had expected, adding that the September and December operations should be assessed in combination.
After 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.
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