ECB expects low inflation in euro zone over medium term

FRANKFURT Thu Jan 9, 2014 8:43am EST

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FRANKFURT Jan 9 (Reuters) - The European Central Bank expects inflation to remain low for some time but then to move back up towards the bank's target, its president, Mario Draghi, said on Thursday.

He said the expectation for the medium to long term was for inflation to remain "anchored" to the ECB's close-to-but-below 2 percent target.

Draghi also said there was no change to the ECB's view of how monetary policy would proceed.

"We firmly reiterate our forward guidance and we continue to expect that key ECB interest rates will remain at present or lower levels for an extended period of time," he said at a news conference after the ECB kept its main interest rate at a record low of 0.25 percent.

Euro zone inflation has undershot the ECB's target of just below 2 percent for several months and stood at 0.8 percent in December, sparking concern the euro zone could go down a similar route as Japan in the 1990s and enter a deflationary scenario.

Draghi said last week there were no signs of deflation or an urgent need for another rate cut, but added that it was vital to avoid a scenario where inflation gets stuck permanently below one percent and slips into a danger zone for the economy.

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