AFP, Frankfurt :
The European Central Bank kept its gunpowder dry again yesterday, holding key interest rates unchanged for the fifth month in a row.
But it said it remained “resolute in its determination” to ward off the threat of deflation and keep economic recovery on track in the 18 countries that share the euro.
As widely expected, the ECB left its central “refi” or refinancing rate unchanged at 0.25 percent at its monthly policy meeting.
The last time the ECB pared back eurozone borrowing costs was in November.
Few ECB watchers had been betting on a further cut this month, but Draghi was clear that the central bank remained on high alert and would “act swiftly” if needed to ward off the spectre of deflation.
“We will monitor developments very closely and will consider all instruments available to us. We are resolute in our determination to maintain a high degree of monetary accommodation and to act swiftly if required,” Draghi said.
“Hence, we do not exclude further monetary policy easing and we firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time,” he continued.
According to the latest data compiled by the EU statistics agency Eurostat, area-wide inflation stood at just 0.5 percent in March, down from 0.8 percent in February and way below the ECB’s target of just under 2.0 percent.
Draghi said the slowdown came as a surprise to the ECB, but that one-off factors were partly responsible and inflation rates would gradually move upwards in future.
Draghi insisted that the ECB “does not see any deflation risks” at present, even if there was no room for complacency.
Deflation is a destructive spiral of falling prices in which consumers put off purchases, thus destroying salaries, jobs and investment.
In addition to cutting interest rates, the ECB also has a range of “non- standard” tools at its disposal, such as liquidity injections and so-called quantitative easing, Draghi said.
Quantitative easing, or QE as it is known in central bank circles, is the wide- scale purchase of government bonds, an anti-crisis tool already resorted to by the Bank of England and the United States Federal Reserve.
But the ECB has qualms about taking similar action in Europe, because it could contravene its own statutes.
