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ECB's Draghi: If price stability is at risk, we would act

The head of the European Central Bank has paved the way for further monetary easing in December, warning that signs of a sustained turnaround in core inflation had weakened.

Addressing the European parliament's Economic and Monetary Affairs Committee Thursday, Mario Draghi said that "downside risks stemming from global growth and trade are clearly visible" in the euro zone.

Although a recovery in the 19-country single currency region was "progressing moderately" there were risks posed by the area's "inflation dynamics."

Mario Draghi, President of the European Central Bank (ECB).
Daniel Roland | AFP | Getty Images
Mario Draghi, President of the European Central Bank (ECB).

"Inflation dynamics have somewhat weakened, mainly due to lower oil prices and the delayed effects of the stronger euro exchange rate seen earlier in the year. In addition, price pressures – such as from producer prices – remain very subdued," he said.

Draghi warned that from today's perspective, "this suggests that a sustained normalization of inflation could take longer than we anticipated in March when we first appraised the overall impact of our measures."

The ECB launched a 1 trillion euro ($1.06 trillion) quantitative easing program in March in order to boost the euro zone's fragile economy. Inflation remains stubbornly low, however, reflecting a continuing lack of demand.

In October, Draghi hinted that the bank could introduce further stimulus measures in December.

He reiterated that view Thursday, saying "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained."

He said the bank was closely monitoring the risks to price stability and that ECB staff would consult on "the range of instruments available in case more accommodation should be seen as necessary."

The bank's inflation target is 2 percent but the euro zone is currently flirting with deflation after the inflation rate flatlined in October.

European stocks recovered some ground after Draghi's remarks. Click here for the latest on the markets.