MNI POLICY: TLTROs Among Tools ECB Considering, Says VP

By Luke Heighton

     FRANKFURT (MNI) - Targeted longer-term refinancing operations (TLTROs) are

one of "a large range of tools" at the European Central Bank's disposal,

Vice-President Luis de Guindos said in an interview with Le Monde published

Tuesday.

     A decision on whether to use TLROs will be taken only after the ECB has

conducted a "thorough analysis" of the reasons behind the eurozone's faltering

growth, De Guindos said. But his remarks came shortly after ECB Chief Economist

Peter Praet said the Governing Council would use March's monetary policy meeting

in Frankfurt to assess "the current and expected state of bank transmission."

     Here are the key points from De Guindos interview, which was conducted on

February 13:

     - The ECB is sufficiently well-equipped to deal with a slowing eurozone

economy, De Guindos said, with "a large range of tools at its disposal,

including advance communication about its strategy (forward guidance),

reinvesting the debt securities it holds as they mature, and targeted lending to

banks - the TLTROs." He said that "(W)e are currently analysing the causes of

the economic slowdown in Europe, some of which are temporary," but added "we

will not take a decision until we have conducted a thorough analysis."

     - The current economic slowdown "is as much the result of international

factors, which have weighed on exports - the slowdown of the global and Chinese

economies, the risks of protectionism, market volatility, difficulties in some

emerging markets - as it is the result of internal factors, like the uncertainty

surrounding Brexit and the tensions over the Italian budget at the end of last

year," he said.

     - A disorderly Brexit, De Guindos said, "would represent a significant

macroeconomic shock at a time when the European economy is already weakened. The

UK's GDP could shrink by up to 8%, according to the Bank of England. This would

naturally affect the euro area economy."

     - Low unemployment and increasing employee compensation meant the ECB is

"confident" that inflation with will pick up "within a few months or quarters,"

De Guindos said. "Even if energy prices were to fall a little in the coming

months, we are confident that inflation will, over the medium term, converge

towards our aim of below, but close to, 2%."

     - Asked whether, rather than constantly seeking to raise GDP, Europe should

adjust to permanently weak growth, De Guindos replied that demographic trends

"are not very favourable for growth. But that shouldn't stop us from

implementing reforms that aim to boost growth in the long term," such as banking

union, the creation of the European fiscal instrument, and legislative

harmonisation.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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