Draghi confident of Yes vote

European Central Bank (ECB) president Mario Draghi has said he believes Ireland will vote yes in the forthcoming referendum on the fiscal treaty.

He was speaking after the ECB today lowered its euro zone growth forecast after holding interest rates at record lows.

"I really am confident that the referendum will pass and the fiscal compact will be approved," said Mr Draghi when asked about the likelihood of Ireland backing the treaty.

"Ireland is probably one of the programme countries that made the most progress," he added.

Mr Draghi said the euro zone crisis would have been much worse without the ECB's dramatic action to pump €1 trillion into the banking system.

The ECB's staff forecasts showed the economy could shrink by 0.5 per cent this year and at best grow by a meagre 0.3 per cent, a slight downgrade of its previous estimate.

"However, the economic outlook is still subject to downside risks," ECB president Mario Draghi told a news conference, after the central bank left interest rates at 1.0 per cent.

Meanwhile, a recent 20 per cent rise in oil prices is rekindling inflation to some extent. It is now forecast to be higher, at between 2.1 and 2.7 per cent this year, above the ECB's target of close to but below two per cent.

"Owing to rises in energy prices and indirect taxes, inflation rates are now likely to stay above 2 per cent in 2012, with upside risks prevailing," Mr Draghi said.

German Bund futures rose while European shares and the euro trimmed gains after Mr Draghi said growth forecasts had been cut.

"In our view, the projections are still relatively optimistic as hard data have failed to show the stabilisation process, especially in the (euro zone) periphery. Risks are clearly skewed to the downside," said Annalisa Piazza at Newedge Strategy.

Mr Draghi was in no doubt that the ECB's twin three-year funding operations, which pumped over €1 trillion into the euro zone banking system, had saved the currency bloc from a serious crisis.

Borrowing costs for debt strugglers such as Italy and Spain have tumbled as a result and Mr Draghi said markets, including the interbank lending market, had reopened and "real money" investors were returning to euro assets."All in all, we see that great progress has been achieved," he said.

"Simply compare what the situation was in November last year and what it is today," he said.

Agencies