ECB Chief Economist says policy measures are working

by Jonathan Adams

The Chief Economist of ECB Peter Praet says borrowing costs are down and inflation poised to rise. The bank’s policies over the last 18 months have been successful and bringing down borrowing costs for the private sector and should push up inflation, Peter Praet said.

“This complex package of policy measures has led to a significant easing in borrowing rates for the broad economy and should thereby continue to contribute to the recovery of the euro area economy and the return of inflation rates in the medium term to levels closer to 2%,” he said in London Friday.

Peter Praet continued, “Early evidence confirms that the current policy measures are delivering tangible results, in particular by improving financing conditions faced by firms—including small and medium-size ones—and households, thereby stimulating credit demand and spending,”.

He credited ECB program of targeted loans to banks with reducing the differences in lending costs throughout Eurozone. Referring to, TLTROs, the acronym for such loans, he said decline in “fragmentation” could be “in part explained by the effects of the TLTROs”.

He said, “Evidence from the bidding behaviour of banks confirms that TLTROs participation is frequently followed by a compression in lending rates.”

Peter Praet’s remarks and announcement of the sixth instalment of the TLTRO program by ECB; both come on Friday. According to ECB, Eurozone banks have borrowed €18.3 billion ($20.1 billion) from the program. The loans from ECB at policy rate of 0.05% have been availed by 55 banks, with the volume bit higher at €15.6 billion compared to the September figure the previous year. According to analysts lending is not at the desired pace, although, progress is there. BNP Paribas economist Ken Wattret said, “Progress on net lending is being made but not as quickly as hoped”.

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