Euro zone economy resilient to recent shocks: ECB's Constancio

October 9, 2016 9:25 AM EDT

European Central Bank Vice President Vitor Constancio speaks during a Reuters Newsmaker event in New York February 19, 2016. REUTERS/Brendan McDermid


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WASHINGTON (Reuters) - The euro zone economy is proving surprisingly resilient to a series of recent shocks and growth remains on a steady path in line with projections, European Central Bank Vice President Vitor Constancio said on Sunday.

Inflation is set to rapidly accelerate in the next few months, exceeding 1 percent by next spring, provided the ECB's supportive monetary stance is maintained, Constancio said in Washington.

Facing the threat of deflation, the ECB has unleashed unprecedented stimulus in recent years, cutting rates into negative territory, buying over 1 trillion euros of assets and giving banks free loans to boost lending.

Yet inflation has missed its target of close to 2 percent for three and a half years and will not rise back to near that level until late 2018 or 2019, according to the central bank's projections.

Responding to recent talk about the end of the asset purchase program, due to last at least until March, Constancio said the ECB was working to implement the measures, not end them.

"We will have to decide closer to that date the final timeline of the program and its conditions," he said. "We have not yet started any discussion about this issue."

Markets expect the ECB to extend the scheme by at least three months at its December meeting.

Dismissing criticism that low interest rates were hurting banks, Constancio said lenders have so far benefited, but over the long term they still had to undertake major restructuring.

"Contrary to some perceptions, our monetary policy has had a positive effect on the profitability of banks since 2014," he said.

"We are aware that some of these effects will wane with time and that the banking sector will have to undergo structural reforms to overcome the challenges of a low profitability environment that, looking forward, is not sustainable," he said. "Public policy initiatives are necessary to foster the restructuring efforts."

(Reporting by Balazs Koranyi; Editing by Hugh Lawson and John Stonestreet)



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