Draghi Warns Of Rising Deflation Threat In Eurozone, Hints At QE

(RTTNews) - European Central Bank President Mario Draghi said that the risk of deflation in the euro area has risen over the months and the central bank is preparing to react to such a threat, if necessary.

His comments, suggesting that the ECB is moving closer to unleashing full-blown quantitative easing, including sovereign bond purchases, dragged the euro to its lowest level in more than four years.

In an interview with German financial daily Handelsblatt, published on Friday, Draghi said, "The risk that we do not fulfill our mandate of price stability is higher than six months ago."

"We are in technical preparations to adjust the size, speed and compositions of our measures at the start of 2015, should it become necessary to react to a too-long period of low inflation. There is unanimity within the Governing Council on this," he said.

Draghi maintained that the risk of deflation in the euro area was limited, while saying that the bank has to act against the risk of a prolonged period of low inflation.

According to the latest data from Eurostat, euro area inflation eased to a five-year low of 0.3 percent in November.

The ECB aims to keep headline inflation 'below, but close to 2 percent'. The recent fall in oil prices has weakened the inflation outlook.

Policymakers have repeatedly said that the bank stands ready to take further measures if the Eurozone economic situation warrants action.

The proposals for boosting the ECB balance sheet to EUR 1 trillion and buying sovereign bonds face stiff opposition from different quarters, especially from the most influential state - Germany. Meanwhile, there has been some speculation of the bank discussing the purchase of corporate bonds.

The bank already started buying covered bonds and asset-backed securities, measures which were announced in September.