The European Central Bank has left interest rates at a record low at 0.25 percent, but said it remained ready to act in the face of risks to the eurozone economy – particularly turbulence in the emerging markets. <br /><br />ECB President Mario Draghi, speaking after the latest Bank policy meeting, did not seem worried about a sharp drop in inflation in the region.<br /><br />He blamed that on the countries that had needed some kind of bailout: “Much of the decline in inflation – in core inflation – actually comes from the four programme countries: Spain, Ireland, Portugal and Greece. So, all in all this would signal more a relative price adjustment than any deflation phenomenon taking place. So I have tried to give you a sense of how complex is the picture, which would explain why – before taking any decision today – we would wait.” <br /><br />In those battered economies people are spending less so inflation is weak, or in the case of Greece prices are falling dramatically. <br /><br />The ECB’s inflation target is around 2.0 percent. <br /><br />Draghi is wary of it getting stuck in what he has called a “danger zone” – below 1.0 percent – thereby hampering the fragile economic recovery. <br /><br />He again vowed to keep the cost of borrowing at present or lower levels for an “extended period” and surprised financial markets by not signalling a near-term rate cut during his remarks to reporters. <br /><br />If emerging market turmoil persists, a move is more likely next month when the ECB’s staff will produce fresh economic forecasts. If they downgrade their inflation estimate – already at just 1.2 percent for 2014 – action could follow.
