* QE would be answer to deteriorating inflation expectations
* QE can include government bonds, private sector loans
* But at the moment ECB focusing on current measures -Draghi
* ECB sees no sign of deflation in euro zone
* Interest rates "will remain low over a longer period"
FRANKFURT, June 21 European Central Bank
President Mario Draghi said large-scale asset purchases are part
of the central bank's toolkit, but for now it would focus on its
latest set of stimulus measures.
Draghi told Dutch newspaper De Telegraaf in an interview
published on Saturday that the euro zone recovery was still
weak, uneven and vulnerable and that interest rates would stay
low over a longer period.
Asked what needed to happen before the ECB would start
buying assets to give banks more money to lend, also known as
quantitative easing, Draghi said "that would be the answer to a
deterioration of inflation expectations over the medium term."
"At the moment, however, we are focusing on the measures
announced on 5 June," Draghi was quoted as saying.
The ECB's target for medium-term inflation is below, but
close to 2 percent, a far cry from the current level of 0.5
percent, which has sparked concern the euro zone could enter a
Japan-style deflationary spiral of falling prices, slowing
growth and waning consumption and investments.
At the June policy meeting, the ECB cut interest rates to
record lows - the deposit rate below zero - and launched a
series of steps to boost lending to companies. Draghi said after
the meeting the ECB could still do more if necessary.
Buying government bonds "is indeed possible within our
mandate, namely if the purchases are aimed at ensuring price
stability," Draghi told the paper. "Quantitative easing can
include not only government bonds, but also private sector
loans. We will discuss that when the time comes," Draghi said.
But he emphasised that the ECB had not seen any deflation in
the sense of prices declining across the whole spectrum in the
euro zone, with households and firms postponing consumption and
investment because they are waiting for lower prices.
The recovery was still vulnerable, however, and Draghi
warned that disruptions in the global economy could "quickly
change the situation." Persistently low inflation also made
adjustments more difficult, Draghi added.
Asked how long interest rates would remain low, he said:
"We have prolonged banks' access to unlimited liquidity up
to the end of 2016. That is a signal. Our programme in support
of bank lending to businesses will continue for four years. That
shows that interest rates will remain low over a longer period."
Thereafter rates would increase when the recovery firmed up.
PERFECT MONETARY UNION
A key step that took the sting out of the European debt
crisis was Draghi's signature policy - the OMT bond-buy plan he
launched in 2012 to back up his pledge to do "whatever it takes"
to save the euro.
Even without deploying the tool, markets calmed down.
Draghi said he was, like many others, surprised by the
magnitude of the effect the programme has had.
"We were all surprised," he said, adding that the programme
despite not being used so far could be activated if needed.
"In order to be credible, we also had to be sure that we
could actually use the instrument. We were not bluffing, most
certainly not," he said.
Turning to euro zone politics, Draghi said "far more is
necessary for a perfect monetary union" and suggested to subject
structural reforms to union-wide discipline, too.
"In the case of the budget agreements, sovereignty has been
shared among member states. That should also be done with
respect to the labour market, competitiveness, bureaucracy,
agreements on the internal market," Draghi said.
"You could grant greater powers to the European Commission,
or to the member states within the European Council, or you
could create new European institutions. That is not for me to
decide," Draghi said.
(Reporting by Eva Taylor; Editing by Lisa Shumaker)