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ECB's Draghi Plays Down Negative Deposit Rate Talks

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European Central Bank President Mario Draghi on Thursday rejected media reports that the central bank is planning to take the deposit rate to negative territory.

"Let me plead with you - don't try to infer from what I say today anything on the possibility of negative rates on the deposit facility," Draghi said in a speech in Berlin.

"As I said at the press conference: this was discussed in the last monetary policy meeting and there are no news since then," he said at the event organized by the German newspaper Suddeutsche Zeitung.

"Let me make this clear," he added. The euro rose following Draghi's comments.

On November 7, the ECB sprung a surprise by cutting the key interest rate by a quarter-point to a record low 0.25 percent, given the combination of low inflation, record unemployment and a stronger currency.

In the post-decision press conference on November 7, Draghi reiterated that the ECB was "technically" ready to move the already-zero deposit facility rate, if needed.

Citing two unidentified central-bank officials, Bloomberg News reported this week that the Governing Council is mulling over a reduction in the deposit rate to minus 0.1 percent in a bid to avoid deflation.

Recent ECB rhetoric suggest that the bank may also consider extraordinary measures such as asset purchases in coming months.

Eurozone inflation fell to a four-year low of 0.7 percent in October. The ECB aims to keep inflation 'below, but close to 2 percent'.

"We need this buffer away from zero to provide a safety margin against deflationary risks at the euro area level," Draghi said.

Regarding the rationale behind the latest rate cut, Draghi said, "The context of this decision was a gradual but sustained downward drift in inflation that we had observed over several months."

"Combined with still weak economic and monetary dynamics, the latest data suggest that we may experience a prolonged period of low inflation going forward," he added.

However, the ECB does not see deflation risks materializing in the euro area, but expects inflation to return very gradually to levels below but close to 2 percent as economic recovery takes hold, the central banker said. This view is supported by inflation expectations which remain firmly anchored close to 2 percent, he noted.

Draghi acknowledged that the latest rate cut has raised some concerns, in particular the implication of low interest rates for savers.

The ECB chief pointed out that the interest rate that matters most to long-term savers is not the main ECB refinancing rate, but the rate on safe long-term investments - in Germany, that is long-term Bunds.

"The current low level of interest rates on long-term Bunds is largely explained by investors that have sought safe assets in the context of sovereign debt tensions in the euro area," he said.

Further, Draghi said sustainable recovery cannot be achieved only through monetary policy, but it needs efforts from governments, businesses and social partners.

"There is no short cut to growth through debt," he said.

He praised Germany's efforts in building solid foundations for growth. Turning to euro countries which are regaining competitiveness, Draghi said, "In a monetary union, wages have to reflect productivity to maintain price competitiveness."

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