ECB signals it may cut rates if European economy deteriorates

European Central Bank president Mario Draghi signalled the ECB stands ready to cut interest rates if Europe's economy deteriorates and said officials are considering additional measures as the debt crisis enters its fourth year.

"Our monetary policy stance will remain accommodative for as long as needed," Mr Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at a record low of 0.75 per cent.

"In the coming weeks, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability."

The euro fell as Mr Draghi spoke, dropping more than half a cent to $1.2746. With doubts growing about Mr Draghi's forecast for a second- half economic recovery, the ECB is looking at a range of possible actions, three officials with knowledge of the deliberations said this week.

While the ECB president didn't announce new measures in his opening statement such as encouraging lending to small- and medium-sized companies, he said: "We are looking at various instruments, various tools."

Mr Draghi said risks to the economic outlook remain on the downside and the "consensus for the time being was not to look at rates".

A botched first attempt to rescue Cyprus last month sent bank shares tumbling across the euro area and rattled confidence in policy makers' ability to tame the sovereign debt crisis. Evidence is also mounting that the economy is struggling to exit recession.

The ECB's measure of bank lending to the private sector fell for a 10th month in February, dropping 0.9 per cent from a year earlier.

Meanwhile, euro region manufacturing activity, measured by a survey of purchasing managers, contracted more than economists forecast in March.

"Weak economic activity has extended into the early part of the year and a gradual recovery is projected for the second half of this year, subject to downside risks," Mr Draghi said.

Bloomberg