BERLIN (Reuters) - The European Central Bank is aware of the growing costs to the financial sector of its ultra-loose monetary policy and would rather not have to keep negative interest rates for too long, ECB President Mario Draghi said on Tuesday.
Speaking in Berlin, Draghi defended the ECB's policy of aggressive bond buying and ultra-low rates from accusations that it has led to growing inequality and a shift of financial income from stronger to weaker economies.
But he also acknowledged complaints by banks, particularly in Germany, that low rates are eating into their profits.
"We would certainly prefer not to have to keep interest rates at such low levels for an excessively long time, since the unwelcome side-effects may accumulate over time," Draghi told an event in Berlin.
The ECB is studying options to ensure its 80 billion euros a month ($87.06 billion) money printing program can run at least until March as eligible assets to buy in Germany run scarce.
Draghi's comments were likely to further lengthen the odds on another cut in the ECB's deposit rate of -0.40 percent, effectively a charge banks have to pay for parking money overnight with the central bank.
Draghi said that record-low interest rates in the euro zone are not a 'new normal', although the single currency area will remain vulnerable without a full monetary and banking union.
"New normal certainly not. We will get out of these measures when price stability has been reached in a sustainable way without the extraordinary monetary support of today," he said during a question and answer session after his lecture.
He also tackled a common German criticism that the ECB's low rates were hurting small savers.
"Certainly, some savers might suffer from a temporary period of low interest rates, especially if they rely on interest income and cannot smooth their consumption through credit," he said. "But whatever financial assets savers hold, in the final analysis their return always depends on the growth rate of the economy."
Speaking almost simultaneously at a separate event in Berlin, German Finance Minister Wolfgang Schaeuble said there was a growing international consensus that monetary policy had reached its limits.
Schaeuble also said he believed there was an excess of liquidity and excess of indebtedness internationally.
Draghi said the ECB was aware that low interest rates and plenty of liquidity could be a recipe for financial stability risks but saw no such risks at the moment.
"We don't have any sign that credit is feeding into financial stability risks," he said.
Turning to the future of the single currency project, he added: "We should not lose sight of the fact that if the monetary union is not finished, if the banking union is not completed, if the capital markets union isn't achieved, these risks remain on our radar."
(Reporting by Paul Carrel and Joseph Nasr; Writing By Francesco Canepa; Editing by Catherine Evans)