ECB cuts growth forecasts, keeps interest rates unchanged

Interest rates to stay flat at 0.05 per cent

Mario Draghi inisted the recovery was 'on track' at the ECB press conference in Frankfurt (Reuters)

The European Central Bank has cut growth and inflation rates but stands to ready act should further signs of deterioration in the eurozone economy appear, ECB President Mario Draghi said on Thursday.

The ECB said growth in the euro area is now projected to be 1.4 per cent in 2015, versus the 1.5 per cent it forecast back in June, while inflation would be a mere 0.1 per cent instead of 0.3 per cent.

It also trimmed forecasts for 2016 and 2017 on both counts.

Draghi, speaking at a press conference following the Bank's latest interest rate decision, said: "Downside risks have increased and emerging market economies' challenges are unlikely to be quickly reversed," he said.

"So lower commodity prices, a stronger euro, a somewhat lower growth, have increased the risk to a sustainable path of inflation towards 2 per cent."

Interest rates were unchanged, with the headline rate still at 0.05 per cent.

Draghi pledged that the ECB's Governing Council would "closely monitor" the situation and had already shown "willingness and ability to act if warranted".

He said any such action could involve the Bank's €1 trillion-plus quantitative easing programme, which “provides sufficient flexibility in terms of adjusting the size, composition and duration”.

The euro dipped to a two-week against the dollar of $1.115 following the comments.

Additional Reporting by Reuters