* ECB keeps main interest rate unchanged at 0.25 pct
* Draghi says ECB Council "comfortable with acting next
* But will wait for updated forecasts first
* Draghi says strong euro a cause of serious concern
* Says pressuring ECB to act risks hurting its credibility
(Updates with economist reaction)
By Jan Strupczewski and John O'Donnell
BRUSSELS, May 8 The European Central Bank is
ready to take action next month to boost the euro zone economy
if updated inflation forecasts merit it, its president said on
Thursday, warning outsiders not to pressure the bank into
Stressing that the euro's strength was "a serious
concern", ECB chief Mario Draghi said the exchange rate would
have to be addressed, adding that the bank's policymakers held a
discussion about "all instruments" at their meeting in Brussels.
Euro zone inflation ticked up to 0.7 percent in April from
March's 0.5 percent, but remains far below the ECB's target of
just under 2 percent, and Draghi said: "There is consensus about
being dissatisfied with the projected path of inflation."
"The governing council is comfortable with acting next time
but before we want to see the staff projections that will come
out in early June," he told a news conference after the ECB left
interest rates on hold, as expected.
Draghi did not specify what policy action the ECB could take
beyond saying Thursday's council discussion touched on the
policy instruments the central bank has mentioned previously.
These have included interest rate cuts, liquidity measures
and even quantitative easing - central-bank speak for money
printing to buy assets, a policy already pursued by the U.S.
Federal Reserve, the Bank of Japan and the Bank of England.
"With today's press conference it will be hard for the ECB
to take a 'mañana mañana' attitude," ING economist Carsten
"With his comments on the exchange rate and hints at
possible June action, Draghi has pushed the ECB into a corner
from which it will be very hard to escape," Brzeski added.
The euro hit a 2-1/2 year high against the dollar while
Draghi spoke before falling when he said the ECB was comfortable
with taking action in June.
The ECB governing council met in Brussels against the
backdrop of a Franco-German spat over ECB policy regarding the
strength of the euro - one factor Draghi has identified as a
potential trigger for policy action.
"The strengthening of the euro in the context of low
inflation and still low levels of economic activity, is a cause
for serious concern in the view of the Governing Council," he
But Draghi pushed back against the countries - led by France
- and institutions that have been urging the ECB to take action
to boost the economy and counter low inflation.
"We have received plenty of advice," he said. "We are
independent, so people should be aware that if this might be
seen as a threat to our independence it could cause long-term
damage to our credibility."
QE "SOME WAY OFF"
Thursday's strong signal that the ECB is ready to act in
June will heighten speculation about just what the ECB could do.
Draghi raised the idea in an April 24 speech of a
"broad-based asset purchase programme" if the inflation outlook
worsens. But just a few days later - at a meeting with German
lawmakers - he played down the prospect of QE any time soon.
The ECB chief did see "a problem of ongoing low inflation
rates, which could lead to measures", a source who attended the
meeting said, adding: "He mentioned quantitative easing in this
context but made clear that we're still some way off QE."
A far more likely scenario is a cut in rates - both in the
ECB's main refinancing rate and perhaps in its deposit rate.
Cutting the deposit rate into negative territory from zero
would see the ECB effectively charge banks for holding their
money overnight - a move that, in theory, would encourage them
to lend more money out to businesses and households.
Several ECB policymakers have signalled that a cut in the
deposit rate into negative territory is their preferred measure
for dealing with strength in the euro, as it would make
euro-denominated assets less attractive.
While the ECB is far from embarking on a broad asset-buying
plan, it is closer to readying a targeted funding operation that
would seek to encourage banks to lend to small and medium-size
businesses, or SMEs.
Such an operation could see the ECB offer banks cheap,
long-term loans, or LTROs, in return for collateral in the form
of bundled loans to SMEs - a ploy that would aim to support the
market for SME loans packaged as asset-backed securities (ABS).
If banks responded to the offer, such a measure could give
the smaller companies that form the backbone of the euro zone
economy better access to credit and allow ECB policy rates to
filter through to them more efficiently.
Berenberg bank economist Holger Schmieding said full-scale
QE looked unlikely but that other, smaller measures - like a
modest rate cut, a targeted LTRO, or purchases of some
non-sovereign securities - would have little impact.
"They may lead to a decline in the exchange rate by, say, a
couple of cents, for a couple of weeks," Schmieding said.
(Writing by Paul Carrel and John O'Donnell; additional
reporting by Eva Taylor and Paul Carrel in Frankfurt; Editing by