The European Central Bank Thursday opened the
door to a rate cut next year, after slashing its economic growth
projections for the 17-member eurozone.
Speaking at his monthly press conference, ECB President Mario
Draghi said the eurozone economy will shrink by 0.3 per cent in 2013,
reversing a September projection of 0.5-per-cent growth.
"The economic outlook is weak," Draghi told reporters with
concerns having grown recently that the eurozone could lurch
deeper into recession in the coming months.
The region's economy is set to slump by 0.5 per cent this year,
Draghi said. It should expand by 1.2 per cent in 2014, the December
projections show.
But the risks to the outlook remain on the downside, he said.
The ECB chief also said that inflation should fall next year below
the ECB's annual target of 2 per cent amid slowing economic growth
after coming in at 2.5 per cent in 2012.
Unemployment in the eurozone surged to a record 11.7 per cent in
October as governments rolled out a tough round of fiscal austerity
aimed cutting back high deficit-and-debt levels.
"It is a very high price but it is unavoidable," Draghi said,
laying the blame on governments for failing to act earlier to clean
up their state finances.
Draghi's downbeat economic outlook resulted in the euro slumping
0.7 per cent to below the key 1.30-dollar mark.
Still, he said the Frankfurt-based bank expects economic activity
to gradually recover later next year following a pickup in global
demand and the bank's accommodative monetary policy.
However, he conceded that the economic indicators had been mixed
and that the bank was continuing to monitor economic developments.
The release of the ECB's new economic projections came after the
bank announced that it held borrowing costs at an historic low of
0.75 per cent.
Interest rates in the 17-member eurozone have been on hold since
July.
But Draghi declined to say whether the bank has done enough to
bolster economic growth.
"There was a wide discussion but in the end there was a prevailing
consensus to leave interest rates unchanged", Draghi said when asked
if the bank's governing council had discussed a rate cut.
The ECB's decision Thursday to leave borrowing costs unchanged was
in line with analysts' forecasts.
It followed the announcement in London by the Bank of England
(BoE) that it also left monetary policy unchanged.
The BoE said interest rates in Britain would remain at 0.5 per
cent, while the size of its Asset Purchase Facility (QE) would be
maintained at 375 billion pounds (604 billion dollars).
In his comments to reporters Thursday, Draghi also said that he
believed the eurozone's proposed new bank supervisor should be
monitor all of the currency bloc's 6,000 lenders.
German opposition to the bank authority having responsibility for
all the region's banks has lead to tensions among eurozone members as
they attempt to agree on the supervisor's powers.
But Draghi said: "In practice, a supervisor will not be able to
monitor all banks."
