November 27, 2014 / 11:07 AM / 4 years ago

Risk of price bubbles won't stop ECB trying to revive inflation: Draghi

FRANKFURT (Reuters) - The risk of price bubbles forming in property or corporate bonds would not deter the European Central Bank from its efforts to revive inflation, ECB officials said on Thursday.

The ECB has cut interest rates to practically zero and is readying more buying programs that could include government bonds, a step known as quantitative easing, to ward off the threat of deflation in the euro zone.

While this forceful opening of the monetary sluices may lead to some excessive price rises, ECB President Mario Draghi and Vice President Vitor Constancio made clear that the threat to financial stability was secondary as long as inflation was on track.

“If we see that a certain real estate market or corporate bond market, for example, shows signs of having a bubble, would this be enough to justify a different monetary policy where we would raise interest rates, when the monetary policy stance based on considerations of price stability would not justify that? The answer is ‘No’,” Draghi said in Helsinki.

The ECB is aware of the potential risks from investors’ complacency and the search for returns, said fellow ECB Executive Board member Constancio in a briefing with journalists.

“We need other instruments to deal with that,” he said, presenting the ECB’s latest review of financial stability.

Constancio said some residential and commercial property markets were “frothy” and vulnerable to correction.

The high yield bond segment and some contingent capital bonds issued by banks also appeared to be overvalued, he said.

“In normal corporate bonds or in equities, I don’t see indicators of overvaluation,” he added.

Reporting by John O'Donnell and Jonathan Gould; Editing by Hugh Lawson

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