By Francesco Canepa and Balazs Koranyi
FRANKFURT (Reuters) - Facing rising threats to growth, the European Central Bank could further delay a planned increase in interest rates if it needs to may look at measures to mitigate the effects of negative interest rates, ECB President Mario Draghi said on Wednesday.
The ECB reversed course earlier this month and put off plans to "normalize" policy, instead providing banks with even more liquidity and delaying a rate increase until next year.
"Just as we did at our March meeting, we would ensure that monetary policy continues to accompany the economy by adjusting our rate forward guidance to reflect the new inflation outlook," Draghi told a conference in Frankfurt.
With external demand in a slump, business investments have suffered and risks are growing that domestic demand and employment will be affected, Draghi said. The ECB's new bank loans -- targeted longer-term refinancing operations, or TLTROs -- are one of the tools to counter the slowdown.
"TLTROs are a flexible tool with a number of parameters which can be calibrated to meet the needs of monetary policy at a given point in time," said Peter Praet, the ECB's chief economist.
Addressing complaints from banks that negative rates are hurting bank lending, Draghi said the ECB would look at whether mitigating measures are needed but said that weak profits are not an automatic result of negative rates.
"If necessary, we need to reflect on possible measures that can preserve the favorable implications of negative rates for the economy, while mitigating the side effects, if any," Draghi said. "That said, low bank profitability is not an inevitable consequence of negative rates."
Some banks in northern Europe have argued for a multi-tier deposit rate, which would shield them from at least some of the extra cost of maintaining excess liquidity.
With its deposit rate at minus 0.4 percent, the ECB collects over 7 billion euros a year in charges from taking excess liquidity. Praet said earlier he was considering the merits of a tiered rate, but policymakers said the idea has not been discussed by the Governing Council.
Draghi also appeared to dismiss the idea that banks need extra help. The best-performing banks used the past decade to reduce costs, diversify revenues and invest in information technology, he said.