-Adds Comments On Inflation To Version Transmitted At 12:58 GMT

FRANKFURT (MNI) – The European Central Bank’s Governing Council
discussed an interest rate cut at its August meeting but decided now is
not the time, ECB President Mario Draghi said Thursday.

The ECB left its main refinancing rate unchanged at 0.75% and left
its deposit and marginal refinancing rates unchanged as well. But
Draghi revealed at the press conference that they did consider lower
rates, but unanimously decided against any move.

“We have discussed possible reductions in interest rates, but the
Governing Council in its entirety decided that this was not the time.
And that’s it,” Draghi said.

Draghi declined to be drawn on the question of lowering the
deposit rate below zero. “On the negative deposit rate … for us these
are largely unchartered waters,” he said.

In his opening statement Draghi painted a picture of diminishing
price pressures, saying monetary expansion was subdued and inflation
should slow further. He said the ECB expects the euro area economy to
recovery only very gradually, dampened by sovereign debt tensions.

In the press conference, Draghi said that inflation was heading
down faster than expected and the ECB’s base case was it would be below
2% by the end of this year moving into 2013.

“Inflation is decreasing … to some extent faster than expected,”
he said. “But there are some risks both downside and upside.”

Draghi downplayed the risk of a price shock from food. The United
Nations FAO Food Price Index in June hit its lowest level since
September 2010, as global food prices declined, but fears over poor
harvests present an upside risk ahead.

“Food prices don’t seem to be a major risk today for euro area
inflation, since they’re viewed so far as one-time shocks,” Draghi said.

“Much of the food that’s consumed in the Eurozone is produced in
the Eurozone and, therefore, it depends very much on agricultural
prices,” he added.

“To some extent, there’s no immediate connection between the world
price level and the agricultural prices. So the potential inflationary
consequences of higher food prices, at this time at least, are not
viewed as likely or significant,” he said.

Draghi also cited energy prices and the decline of the euro as
upside inflation risks.

“Energy and the depreciation of the euro, they have pushed up. But
so far, we don’t see any change in what’s become our baseline scenario,”
he said, reiterating that inflation is expected slow to “about 2% by the
end of this year – it may go below 2% next year or even before next
year.”

“The ECB remains the guardian of price stability and that remains
its mandate,” Draghi declared.

–London newsroom: 4420 7862 7495; email: ukeditorial@marketnews.com

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