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ECB's Constancio: Policy to remain loose for a while

Friday, 12 Jul 2013 | 4:13 AM ET
Bloomberg | Bloomberg | Getty Images

The European Central Bank's monetary policy will stay loose for an extended period of time as Europe's recovery lags behind the U.S., the vice-president of the European Central Bank told CNBC on Friday.

"The recovery in Europe is lagging behind what is happening in the U.S.,which means there is justification for a longer period of time than in the U.S.for monetary policy to stay accommodative," Vitor Constancio told CNBC on Friday. "Meaning rates [will remain] at the current or lower level for an extended period of time but we cannot put a date on that."

The ECB's unprecedented step to provide forward guidance on interest rates last week had been successful in stabilizing financial markets, Constancio added, but it would be unadvisable to make specific comments on the time frame for rate moves, he told CNBC in Singapore.

(Read More: 'Semi-Rude' Draghi, 'Jump the Gun' Carney Criticized)

ECB's Constâncio on Portugal's Bailout
Vítor Constâncio, Vice-President of the ECB, tells CNBC that Portugal has been on track with its reform measures and they anticipate that Portugal will stay in the bailout program and comply.

"The message is clearly a conditional one - not in terms of time period but in terms of developments of inflation, of monetary dynamics and of the real economy. These are the variables that are part of our policy framework," he said.

He said the ECB would not use the unemployment rate,like the Federal Reserve, as a guide to recalibrating monetary policy.

"Inflation is the first primary target - but also the real economy and monetary developments," he said.

(Read More: Why Central Banks Must 'Promise to Be Irresponsible')

Speaking to CNBC after giving a speech at the Official Monetary and Financial Institutions Forum on Friday,Constancio said he expected growth in the euro zone to be in line with IMF estimates, which expects a contraction of 0.6 percent this year, before expanding by 0.9 percent in 2014.

(Read More: IMF Flags Top Three Threats to Global Growth)

Despite the political crisis in Portugal and failures of Greece to implement all the required measures inits bailout program, Constancio said euro zone governments were making progress.

"Countries have been adjusting their policies and doing their reforms. International consensus is that next year there will be growth in Europe, including the periphery - not very buoyant growth but some growth which will be the first sign that Europe is coming out of this phase of adjustment since the crisis."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

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