UPDATE 1-ECB's Constancio sees low probability for protracted low inflation

Thu Jun 19, 2014 7:39am EDT

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ATHENS, June 19 (Reuters) - A protracted period of low inflation would be harmful for the euro zone but remains an unlikely scenario, according to prepared remarks by European Central Bank Vice President Vitor Constancio on Thursday.

In the text of a speech to be delivered at a conference in Athens, Constancio reiterated that the ECB stood ready to take measures to avert such a scenario, and that its response would include a broad-based asset-purchase programme.

"The ECB has left no doubt about its resolve to avoid any downward turn in the euro area inflation developments... the policy response would involve a broad-based asset-purchase programme," Constancio said in the text.

Unlike other major central banks, the ECB has so far stopped short of launching quantitative easing stimulus via an asset purchase programme, but has said it would do so if needed.

Assessing the impact of quantitative easing measures taken by other central banks such as the Fed in the United States, Constancio said on Thursday they did not boost inflation, as critics had feared.

"The concerns expressed by various economists and the media that the extraordinary increases in the monetary base in many countries would lead to significant inflation rates, never materialised," Constancio said.

The ECB earlier this month cut interest rates to record lows, launched a series of measures to pump money into the sluggish euro zone economy, and pledged to do more if needed to fight off the risk of Japan-like deflation.

Constancio said on Thursday the ECB's measures were already having an effect. "Financial market prices have adjusted to reflect the ECB decisions in early June," he said, pointing to a drop by 10 basis points in short-term interest rates and a depreciation of the euro by 2.5 percent.

Protracted low inflation would harm the euro zone because it would increase the real debt value of its member states, he said. (Reporting by George Georgiopoulos and Harry Papachristou)

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