The ECB put off plans to “normalise” policy earlier this month as fears over the euro area economy intensify, instead providing banks with even more liquidity and delaying a rate increase until next year. Nations including Italy and Germany have been at the forefront of worries, with Italy sliding into recession at the end of 2018 and Germany being hit by a string of weak data releases, striking fears of a slowdown in Europe’s largest economy. Addressing complaints from banks that negative rates are having a negative impact on bank lending, Mr Draghi said the ECB would look at whether mitigating measures are needed. But the ECB President added that negative weak profits are not an automatic result of low rates.
Speaking in Frankfurt, Germany, Mr Draghi said: “If necessary, we need to reflect on possible measures that can preserve the favourable implications of negative rates for the economy, while mitigating the side effects, if any.
“That said, low bank profitability is not an inevitable consequence of negative rates.”
The ECB President claimed that while it is “not yet certain” if the euro area economy is gripped in a long-term slump, he hopes the current “soft patch” will not manifest into a serious issue for the economy.
He said: “All in all, the current data suggests external demand has not yet spilled over significantly into domestic demand, but the risks have risen in the last months and uncertainty remains high.
“This is why our medium-term outlook remains that growth will gradually return to potential, but the risks remain tilted to the downside.”
The euro stayed relatively calm against the US dollar following the comments from Mr Draghi, with analysts suggesting such dovishness has already been priced into the single currency.
Shortly after the speech, the euro was little changed at $1.1267.
Shin Kadota, senior strategist at Barclays in Tokyo, said: “Bids for the dollar are returning with Treasury yields off their lows, and also because negative views towards the European economy have done no favours for their currency.”
Some banks in northern Europe have argued for a multi-tier deposit rate, which would shield them from at least some of the extra cost of maintaining excess liquidity.
With its deposit rate at minus 0.4 percent, the ECB collects over 7 billion euros a year in charges from taking excess liquidity.
Back in December, the ECB ended a landmark €2.6trillion ($3trillion) bond purchase scheme just weeks ago.
The four-year-long quantitive easing scheme programme had seen the ECB top up eurozone cash supply by purchasing millions of euros worth of assets each month.
The amount of assets bought each month was reduced in September to €15billion from €30billion as the scheme began to wind down.
The ECB previously said it still expected to keep interest rates at record lows “through” the summer, sticking with its long-standing guidance even though markets now see a much later move.
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