European Central Bank keeps rates at record 0.25% low

Mario Draghi: "The recovery is there, but it is weak, modest and fragile"

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The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25%.

ECB said president Mario Draghi said rates would "remain at present or lower levels for an extended period of time".

There had been speculation that the bank might act to bolster fragile growth in the 18-nation euro bloc.

With eurozone inflation falling below 1%, there is also concern about deflation as consumers delay purchases in the hope of prices falling further.


Inflation is too low for comfort. But Mr Draghi doesn't think it is heading for outright deflation, or falling prices, not for the eurozone as a whole.

So no further action today, beyond stronger language to express the expectation that ECB interest rates will be at current levels or lower for an extended period of time.

But Mr Draghi accepted that more decisive action might in the future be needed. Despite being repeatedly asked, he declined to spell out what the options are.

In particular does it include full-on quantitative easing, buying financial assets including government debt, with newly created money? The kind of thing the Federal Reserve and the Bank of England have done. He wouldn't say and that reflects a political difficulty.

Many Germans would see it as rescuing irresponsible governments and as stoking up future inflation. It's a row he would rather avoid, but still lower inflation would mean he'd have to consider it.

The eurozone economy grew only 0.1% in the third quarter, while inflation, at only 0.8%, remains below the ECB's goal of about 2%.

Mr Draghi told a news conference that the eurozone "may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below but close to 2% later on".

He said the economic risks for the eurozone "remain on the downside" and that the ECB is ready to "take further decisive action" using "all available tools" to spur a weak recovery.

In November, the ECB cut the rate to 0.25%, from 0.5%, which Mr Draghi said at the time was done because of continuing economic weakness among some eurozone members.

He told Thursday's news conference: "I'll be very cautious about saying [the crisis is over]. The recovery is there, but it is weak, modest and fragile. Meaning that there are several risks - financial, economic, geopolitical, political - that could undermine easily this recovery."

Mr Draghi said that the ECB was keeping a close eye on the low inflation rate, but said it was important to understand that the recent fall was in large part due to a technical adjustment of service sector data in Germany.

"We will act when we have reason to think that our medium-term assessment for inflation is changing... Let me be absolutely clear, we have a mandate to maintain price stability - in both directions," Mr Draghi said.

He gave no indication of what action the ECB might take, but said the bank would consider all measures.

Following his comments that interest rates might stay low for some time, the euro fell to 82.27 pence, its lowest against sterling in a year.

Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank, said: "The UK will be the first to raise rates out of the major economies. That was reinforced today."

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