ECB's Draghi set to cut interest rates

President of European Central Bank warns of threat of deflation across European markets

President of European Central Bank warns of threat of deflation across European markets

FRANKFURT – President of the European Central Bank, Mario Draghi, has indicated he is prepared to cut interest rates to boost business and consumer spending and ward off a possible downward spiral of falling consumer prices.

Speaking at an ECB conference in Sintra, Portugal, on Monday, Draghi said the bank would not allow inflation to remain low for long in the Eurozone, stressing that monetary policy should be managed carefully to limit the risk of a rupture between economic performance and inflation.

“What we need to be particularly mindful of at the moment is the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries,” he said.

Pointing out that a change in the policies of central banks takes time to affect markets and consumer spending, Draghi said the ECB should be very careful it does not act too late - a clear sign that action may be taken in the short term.

“We are not resigned to allowing inflation to remain too low for too long. There is no debate about our goal, which is to return inflation to two percent in the medium-term, in line with our mandate.” he said.

Since Draghi said on 8 May that interest rate cuts and other monetary measures may be used to stimulate the economy at their next monetary policy meeting on 5 June, financial markets have been eagerly awaiting the move.

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