Credit volumes are not yet showing the effect of the improvement in banks' funding conditions and the European Central Bank remains committed to keeping interest rates low for as long as necessary, President Mario Draghi said on Monday.
Draghi, who has committed the bank to taking further action if need be to keep market interest rates low, also said it was paying close attention to the lower level of additional funds in the banking system resulting from repayments of emergency funding by banks.
Excess liquidity refers to the level of cash in the system beyond what banks need to cover their day-to-day operations. Excess liquidity is now at 221 billion euros, according to Reuters calculations.
Draghi said that while banks paying back loans they have taken from the ECB, it could also result in higher market rates.
"While repayment of central bank credit is certainly a sign of normalization, the resulting reduction in excess liquidity can reinforce upward pressures on term money market rates," Draghi told the European Parliament in his quarterly testimony.
"We will remain particularly attentive to the implications that these developments may have for the stance of monetary policy."
Source: BNN
