Draghi addressed head-on some of the worries about the bank's large credit infusion during a speech Monday in Berlin, saying that any excess money in the financial system can be quickly sopped up by the central bank when the time is right.
He argued that recent economic indicators suggest the ECB loans haven't led to an excess of credit or an increase in the money supply in the 17-country eurozone.
Despite the move's success, there have been some worries about the risks involved. The ECB loosened its collateral requirements to enable more banks to take the loans, and Germany's central bank has cited a recent increase in real estate prices in Germany as a potential concern.
Draghi said, however, the added ready money would only boost prices when and if lending takes off.
"We would expect an impact on inflation and asset prices only following a sustained and strong increase in money and credit, not following an increase in central bank liquidity per se," he said. "The tentative signs we are seeing of a stabilization in money and credit growth do not signal increasing inflationary pressures over the medium term."
Instead, lending by banks to the private sector has only stabilized, growing by a below-average 1.5 per cent in January. The broadest measure of the supply of money in the eurozone economy, or M3, grew only 2.5 per cent that month, well below the 5.9 per cent average over the 13-year life of the common euro currency.
M3 is an arcane statistic for most people but the bank follows it closely, since excessive monetary growth can be inflationary. Controlling inflation is the ECB's main job under the basic European Union treaty.
Inflation ran at 2.7 per cent in February, higher than the bank's goal of just under 2 per cent, and is expected to remain over 2 per cent for all of this year before falling. The bank mostly blames higher oil prices and some tax increases for that, not monetary factors.
The two massive rounds of loans — €489 billion ($649 billion) to 523 banks on Dec. 21 and €530 billion ($704 billion) to 800 banks on Feb. 29 — have eased Europe's debt crisis by steadying banks and making it easier for governments to borrow. The loans were effective because they are for up to three years — compared to the previous longest offering of one year — and currently cost only a 1 per cent interest rate.
The amount of new credit was actually about €500 billion ($664 billion) since banks moved some money from other ECB credit offerings to the two so-called longer term refinancing operations.
When the economy picks up, the bank can quickly drain the added liquidity from the system by increasing the required reserves that banks must keep at the central bank or by taking either short-term or long-term deposits from banks, he said — tools that the bank could use at any time.
Some banks have used the money to pay off financing debts that were coming due while others used some of it to buy government bonds, easing borrowing for heavily indebted governments such as Spain and Italy.
But some of the money has been kept back by banks that are under pressure from the European Union to strengthen their finances against the debt crisis. Extra cash has also been washing back to the ECB as overnight deposits, although Draghi stressed it was not coming from the banks that had borrowed the funds but from others.