Papademos: ECB will not permit deflation

SAN FRANCISCO Jan 4 (Reuters) - European Central Bank Vice President Lucas Papademos said on Sunday that cutting interest rates to very low levels demanded great care, but this would not prevent policy-makers taking action to prevent deflation.

"We will do what is necessary, in terms of the timing and in terms of the size (of interest rate policy action) to ensure that price stability is preserved," he said.

Papademos was speaking to reporters on the sidelines of the annual meeting of the American Economics Association.

"Inflation will not be allowed to fall significantly below 2 percent for a protracted period of time, over the medium term, which we do not expect on the basis of our present analysis," he said. (Reporting by Alister Bull, editing by Leslie Adler)