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Draghi hits back at IMF as ECB holds fire

Draghi hits back at IMF

European Central Bank (ECB) President Mario Draghi took a swipe at the International Monetary Fund (IMF) Thursday, as he defended the bank's decision to keep monetary policy unchanged for another month.

On Wednesday, the IMF Managing Director Christine Lagarde called for more action from the ECB to combat falling inflation and keep the euro zone's recovery on track.

But in a press conference following the ECB's monthly monetary policy meeting, where it decided to hold rates at the record low of 0.25 percent, Draghi said he appreciated the IMF's contribution - although his tone told another story.

"The IMF has been (recently) extremely generous in its suggestions on what we should do or not do, and we are really thankful for that," Draghi said, but added that the ECB's Governing Council disagreed.

IMF calls on ECB to act amid 'low-flation'

"Frankly, I would like the IMF to be as generous as they have been towards us also with other monetary policy jurisdictions, like for example issuing statements just the day before an FOMC (U.S. Federal Open Market Committee) meeting would take place," he added.

ECB holds fire

The comments came as the ECB opted to keep monetary policy unchanged, despite some calls to act in an effort to quell fears that price increases were either slowing down or falling into reverse, which could damage the region's economy.

"A potentially prolonged period of low inflation can suppress demand and output—and suppress growth and jobs. More monetary easing, including through unconventional measures, is needed in the euro area to raise the prospects of achieving the ECB's price stability objective," Lagarde said.

But the ECB held its key interest rate at 0.25 percent, where it has stayed since November last year. The interest rate on the ECB's deposit facility also remained unchanged at zero percent.

The euro was narrowly higher against both the U.S. dollar and British sterling after the announcement, before falling back as ECB President Mario Draghi spoke at his regular news conference in Frankfurt, Germany.

ECB will act 'swiftly' if needed: Draghi

Draghi predicted a "prolonged period" of low inflation, and said the ECB was willing to consider further monetary easing. He added that the ECB's Governing Council had discussed quantitative easing and other interventionist policy measures at its meeting this week.

"The Governing Council is unanimous in its commitment to using all unconventional instruments within its mandate in order to cope effectively with risks of a too-prolonged period of low inflation," he said.

"We don't see the risks of deflation of having increased… our analysis says the risks are limited to both sides," Draghi added.

Follow CNBC's live blog on the ECB conference and market reaction

He forecast inflation would gradually increase in 2015, but would not reach the ECB's targeted rate of just under 2 percent until the end of 2016.

Disinflation fears

Eighteen out of 22 money market traders polled by Reuters this week forecast no change in policy, which echoed the results of a larger Reuters poll of economists last week.

However, economists had raised concern about disinflation—where the increase in prices slows—in the euro zone, and whether this could lead to deflation, where prices actually fall. These fears were bolstered this week when the consumer price index showed inflation slipped to 0.5 percent in March—a 52-month low.

Read MoreCNBC explains: Deflation

In his conference, Draghi said the ECB had decided that March's inflation data was insufficient to alter its medium-term outlook on prices.

Risks to the outlook are to the downside: Draghi

Read MoreIMF calls on ECB to act amid 'low-flation'

One fear with deflation is that it can push down demand, as people hold off on purchases in the hope of further price declines. This can lead to lower production and an economic slump.

However, Marc Chandler of BBH said eyeing the ECB's policy-making through the prism of deflation could be mistaken.

"Even say, for the sake of the argument, the ECB is correct and deflation does not materialize for the region as a whole. The persistence of lower-than-expected inflation, and simply low inflation itself, has a detrimental effect on investment decisions, growth, and the weight of the debt burden," Chandler said in a research note published as Draghi spoke.

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—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato

ECB will act 'swiftly' if needed: Draghi