* June measures expected to lift inflation, support lending
* ECB prepared to countenance QE if necessary
* Economic risks skewed to downside
* To move to six-weekly meetings from next year
* To publish details of long-term loans plan shortly
(Adds detail, analyst comment)
By Eva Taylor and Paul Carrel
FRANKFURT, July 3 A raft of policy measures
introduced last month will help lift inflation and support bank
lending but the European Central Bank stands ready to create
money in future if required, President Mario Draghi said on
The ECB left interest rates steady a month after cutting
them to record lows and pushing the deposit rate into negative
territory for the first time - effectively charging banks for
holding their money overnight to prompt them to lend to
The measures unveiled in June also included extending the
duration of unlimited cheap liquidity for banks until the end of
2016, and offering them a four-year loan plan.
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.
He said last month's measures had further
loosened the euro zone's monetary policy stance.
"The monetary operations to take place over the coming
months will add to this accommodation and will support bank
lending," he told a news conference after the ECB left its key
rate at just 0.15 percent.
"As our measures work their way through to the economy, they
will contribute to a return of inflation rates to levels closer
to 2 percent."
The euro zone inflation rate held at 0.5 percent last month,
well below the ECB's target of close to but below two percent
and in what Draghi has called the "danger zone".
If people and firms began deferring spending plans on the
basis that they expected prices to fall, an economic downward
spiral of the sort suffered by Japan could take hold. The ECB
says its sees no sign of that.
Draghi said the ECB's Governing Council was united in its
willingness to launch into quantitative easing - essentially
creating money to buy government or private debt from banks to
keep borrowing costs low and boost spending - if inflation
headed lower still.
Risks to the recovery remained primarily negative, he added.
"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," Draghi said.
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.
"Draghi maintained a dovish tone, but the threshold for
further near-term easing is high," said Jan von Gerich
chief strategist for developed markets at Nordea.
The ECB president did little to sharpen the bank's forward
guidance on interest rates, saying there was no direct link
between the guidance and comments he made last month on
unlimited cheap liquidity for banks until the end of 2016.
Draghi said the ECB was watching the euro's exchange rate
with great attention. Ahead of Thursday's meeting, Prime
Minister Manuel Valls had renewed French calls for the ECB to
help bring down an "overvalued" euro.
"The exchange rate is not a policy target, but it has become
important," Draghi said. "It is definitely very important for
our outlook on price stability."
Banks will be charged a 10 basis point premium over the
ECB's main funding operations for the TLTROs, or targeted
long-term refinancing operations.
By offering banks the four-year loans at low rates, the ECB
hopes to entice banks to lend more freely, particularly to
small- and medium-sized companies in the euro zone periphery.
Banks across the euro zone 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.
A spokeswoman for Austria's Raiffeisen Bank International,
emerging Europe's second-biggest lender, said the bank had
calculated potential use of around 500 million euros.
"This doesn't mean we will take 500 million," he added. "It
is too early to say but at the moment it does not look
The head of the Italian Banking Association said on
Wednesday the new ECB scheme would be particularly successful in
Italy. But the deputy chief executive of Greece's National Bank
told Reuters his bank would not be able to use the operation to
draw new funding, and carry out new lending, since it does not
have extra collateral available to pledge to the ECB.
Big questions remain, one being why banks would be likely to
lend more before stress tests later this year at which they must
demonstrate they have cleaned up their balance sheets.
"Banks should take full advantage of this exercise to
improve their capital and solvency position, thereby supporting
the scope for credit expansion during the next stages of the
recovery," Draghi said.
The ECB chief said the central bank would move to a schedule
of six-weekly rather than monthly meetings from next year,
mirroring the frequency of the U.S. Federal Reserve's policy
It will also start publishing regular minutes of its
meetings, as the Fed and Bank of England do.
(Additional reporting by Michael Shields in Vienna, and Laura
Noonan in London; Writing by Mike Peacock, Editing by Jeremy