European Central Bank president Mario Draghi departed from a prepared speech yesterday to reiterate the central bank’s readiness to cut interest rates again if the euro zone economy deteriorates further.

The euro hit session lows against the dollar and the yen after Mr Draghi said in Rome the ECB would monitor incoming data and would be ready to cut rates further, including the deposit rate currently at zero.

“We stand ready to act again,” Mr Draghi said.

The ECB cut its main interest rate to 0.5 per cent last week after euro zone inflation fell sharply in April and unemployment hit a record high in March. It signalled then that it was ready to do more should the euro zone economy deteriorate further. ECB executive board member Benoit Coeure said as much on Saturday.

Another cut could drive the deposit rate below its current level of zero. The ECB would then charge banks for holding their funds overnight, a step which could have major implications on funding markets.

“There are many complications and consequences to take into account that need to be studied carefully, and the council has decided to study them, to analyse these consequences in order to be able to act if necessary,” Mr Draghi said, referring to negative deposit rates.

Highlighting the opposition Mr Draghi may face from some ECB policymakers to a further reduction, board member Yves Mersch, a hawk close to Germany’s Bundesbank, said there could be limits to the effectiveness of instruments such as interest rate cuts.

Data released yesterday pointed to darkening growth prospects. The first reading of the euro zone’s first quarter economic performance is due tomorrow, and economists polled by Reuters estimate output fell 0.2 per cent.

Yesterday European purchasing managers’ indexes (PMIs) suggested the euro zone’s downturn dragged on in the current quarter, with Germany now suffering a contraction in business activity that has long dogged France, Italy and Spain.