The European Central Bank yesterday kept interest rates at a record low of 0.75 per cent but stressed that it "stands ready to act" if needed, prompting expectation that the Frankfurt-based bank could lower interest rates as early as next month.
Speaking after the monthly governing council meeting in Frankfurt, ECB president Mario Draghi said the bank's monetary policy stance would remain "accommodative for as long as needed".
“In the coming weeks, we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability,” he said.
Threat of instability
While most analysts had expected interest rates to remain at the record low of 0.75 per cent, the threat of instability posed by the Cyprus bailout crisis had raised the possibility of a cut.
Japan’s announcement on Wednesday night of a radical stimulus plan that includes doubling its government bond holdings within two years, also put the ECB’s monetary policy in the spotlight.
“Our exchange rate is not a policy target,” Mr Draghi said when asked his response to the Japanese plan. “Our exchange rate is important for growth and price stability. We take into account exchange rate developments, like we take into account other developments.”
Devaluations warning
Earlier this week, ECB executive board member Benoît Cœuré warned against countries directly pursuing competitive devaluations.
Mr Draghi’s assertion that the ECB is considering both standard and “non-standard” measures also suggested a willingness to deploy methods other than rate-cutting.
“We are looking at various instruments and tools,” Mr Draghi said. The ECB is forecasting a gradual recovery in the second part of the year, though it stressed the outlook is subject to risks. Slow or insufficient structural reforms and weaker domestic demand are among these.
Inflation in the zone fell to 1.7 per cent in March , down from 1.8 per cent in February, mainly reflecting energy prices. The ECB is mandated to keep inflation below 2 per cent.
