Draghi cautious on recovery, says ECB ready to act

Thu Sep 5, 2013 11:51am EDT
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By Eva Taylor and Sakari Suoninen

FRANKFURT (Reuters) - The European Central Bank said on Thursday it was ready to cut interest rates or pump more money into the euro zone economy if needed to bring money market rates down and help the euro zone's "very, very green" recovery.

The bank left its key interest rate unchanged at 0.5 percent, as expected by all 60 economists polled by Reuters.

But ECB President Mario Draghi said the policymaking Governing Council did discuss a possible rate cut at its monthly meeting, partly due to concern about money market rates and the uncertain nature of the recovery.

"If money market developments were to be judged unwarranted in their impact on our assessment of medium-term inflation, then such an instrument should be considered," he told a news conference, stressing that the ECB has a downward bias on rates.

"We stand ready to act," he added.

The dollar rose to a six-week peak against the euro after Draghi's comments. But money markets shrugged off the ECB's latest efforts to halt the rise in bank-to-bank borrowing costs, with rates roughly were they were before Draghi spoke once the dust had settled.

An ECB statement said the bank would remain "particularly attentive" to the implications of shrinking excess liquidity in the euro area on its monetary policy stance.

The ECB shaved its forecast for euro zone growth next year to 1.0 percent from 1.1 percent in the June staff projection and said the 17-nation currency area's economy would contract by 0.4 percent this year, less than the 0.6 percent foreseen three months ago.   Continued...

Mario Draghi, President of the European Central Bank (ECB) adjusts his glasses as he answers reporters questions during the ECB's monthly press conference in Frankfurt, September 5, 2013. Draghi announced that the ECB leaves the interest rates unchanged. REUTERS/Kai Pfaffenbach (GERMANY - Tags: BUSINESS)