Draghi vows to keep low interest rates as ECB cuts inflation forecast
EUROPEAN Central Bank president Mario Draghi reaffirmed that interest rates will stay low for the foreseeable future, after officials cut their inflation forecast for next year.
"We may experience a prolonged period of low inflation," Mr Draghi said at a news conference in Frankfurt , echoing language he used last month after the ECB unexpectedly cut interest rates.
Yesterday, the ECB kept its main rates unchanged.
Mr Draghi reiterated his commitment to keeping borrowing costs low "for an extended period of time" as policymakers continue their deliberations over whether they have done enough to prevent deflation and support the region's recovery, or whether they need to embrace measures such as a negative deposit rate.
Mr Draghi (pictured) said that officials had a "brief discussion" on whether to cut the deposit rate and hinted that any future offerings of unlimited liquidity to banks will have conditions attached.
The latest projections show that "the ECB expects an inflation rate near its target at the earliest by the end of 2015," said Mario Gruppe, an economist at NordLB in Hanover, Germany. "If the credit tightness and low inflation levels persist, it's only a matter of time before the ECB injects more liquidity – but then under conditions."
The ECB forecasts inflation at 1.1pc in 2014, 0.2 percentage points lower than the previous prediction.
It sees inflation at 1.3pc in 2015, the first time it has made a forecast for that year. The economy will contract 0.4pc this year, unchanged from the previous forecast, the ECB said.
It will expand 1.1pc in 2014 and 1.5pc in 2015. In September, the ECB forecast 1pc growth next year.
Mr Draghi said that ECB policymakers want to make sure that any future offerings of long-term cash find their way into the economy, rather than being hoarded by banks.
Bank lending in the euro area to companies and households shrank 2.1pc in October from a year earlier, the 18th consecutive month of declines, according to ECB data. (Bloomberg)