ECB's Costa warns long period of low rates could undermine stability

[LISBON] Current low interest rates in the euro area are needed, but keeping them low for long could pose a risk to financial stability, and banks should be ready for rate changes in the future, ECB Governing Council member Carlos Costa said on Friday.

"The euro system's monetary policy has benefited economies under pressure, providing adequate conditions for deleveraging and better liquidity... But keeping rates low for a long period could create risks to financial stability and pose a challenge to policymaking," he told a parliemant commission.

Mr Costa, who has been nominated for a second mandate as the head of the Bank of Portugal, said low rates could ultimately lead to an "incorrect risk assessment and consequently an inefficient allocation of resources".

"When granting loans, banks should take into account that rates could be substantially different in the future. It's a new context that represents a challenge."

REUTERS