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ECB's Draghi: Inflation Outlook Subdued, Ready For Decisive Action If Needed

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European Central Bank President Mario Draghi said on Thursday that the outlook for euro area inflation remains subdued due to a weaker economy and the bank is ready to consider all available instruments to tackle any money market volatility.

"We are now experiencing a prolonged period of low inflation, which will be followed by a gradual upward movement towards inflation rates below, but close to, 2 percent later on," Draghi said in his customary post-decision press conference in Frankfurt.

"We continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time."

The Governing Council decided to keep the main refinancing rate at a record low 0.25 percent for a third consecutive month. The marginal lending facility rate was kept at 0.75 percent and the deposit facility rate at zero, where it has remained since July 2012.

"With regard to recent money market volatility and its potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments," Draghi said.

"Overall, we remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required."

Inflation expectations remain firmly anchored and the bank will maintain an accommodative stance of monetary policy for as long as necessary to support a gradual recovery, Draghi reiterated.

Responding to questions from reporters, Draghi said policymakers were prevented from action today by the complexity of the current situation and it was more sensible to wait for the ECB staff macroeconomic projections due in March. He also said the rate-setters did not discuss the sterilization of the Securities Market Programme.

Risks to the euro area economic outlook remain on the downside, the central bank chief said, adding that global developments, notably the emerging market troubles could hurt the situation.

While the moderate economic recovery was giving encouraging signs, Draghi sought extreme caution saying that the recovery is fragile and uneven. He also pointed out that firms' pricing power remained weak.

Draghi said the recent turbulence in the emerging markets was beyond the ECB's control and there was a need to assess whether the situation was temporary. He also noted that the euro area has been resilient to the troubles in the emerging market economies.

The ECB expects underlying price pressures to remain subdued and the bank sees the risks to the inflation outlook as broadly balanced. Draghi said that there were no signs of deflation in the euro area, but only low inflation.

Further, he said the inflation scene in Eurozone had no similarity to what Japan had during the 1990s. However, a prolonged period low inflation warrants close attention from the ECB, he said.

Regarding fiscal reforms, Draghi urged Eurozone governments not to unravel past consolidation efforts and asked them to reduce high government debt.

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