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By Geoffrey T. Smith
European Central Bank President Mario Draghi said Wednesday the euro-zone economy faces "increased downside risks" and that inflation will fall below 2% early next year, but he announced only token adjustments to the ECB's monetary policy, disappointing hopes of more radical action.
Mr. Draghi said the bank would extend its policy of lending banks as much as they want for up to three months. But he didn't announce any new three-year lending operations, as some market participants had hoped.
Earlier, the bank announced that it would keep its official interest rates unchanged. Mr. Draghi said that the decision was taken by "consensus," indicating that there were some dissenting voices.
"Growth remains weak with heightened risks," Draghi said in his opening statement to the monthly press conference following the governing council's meeting.
When asked why the council hadn't cut rates or announced another offer of three-year money, he stressed that "we still have very low nominal rates and negative real rates."
He added that the economic situation was "quite complex," making it uncertain that a cut in interest rates would send the right signal.
Mr. Draghi also repeated that the ECB isn't able to solve all the problems that banks have currently.
"I don't think it would be right for monetary policy to fill in for other institutions' lack of action," Mr. Draghi said.
Mr. Draghi said growth in the euro zone was flat in the first quarter of the year and that so far indicators for the second quarter point to it weakening. However, he said the bank was sticking to its view that the economy would recover gradually in the course of the year.
Contrary to many expectations, the ECB's staff hardly revised their growth forecasts for this year. The central forecast for this year remained at -0.1%, while the central forecast for 2013 was shaved from 1.1% to 1.0%.