- The European Central Bank (ECB) took no action on Thursday, leaving its benchmark interest rates unchanged.
- The central bank's president said in a subsequent press conference that he expected euro zone inflation to pick up despite weaker momentum.
- Draghi also said he was confident that Rome and the European Commission would end an ongoing disagreement over Italy's fiscal spend.
Earlier, the ECB had kept its main rates unchanged and had promised to stick to its stimulus exit timetable.
Speaking at a press conference of the monetary policy decision after the ECB Governing Council in Frankfurt, Draghi said underlying inflation was muted but should pick up by the end of 2018.
"While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Looking ahead, underlying inflation is expected to pick up towards the end of the year and to increase further over the medium term", he said.
Draghi added that upward inflation pressure would not be short-lived as wage increases were not temporary.
"The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding down of our net asset purchases," he said.
Following the remarks, the euro reached 1.1428 versus the dollar before retracing steps. The euro also rose a three-week high of 88.58 pence against sterling.
The European Commission recently rejected Italy's draft budget for 2019, the first time that Brussels has ever sent back a member state's proposed spending template.
Rome now has just under three weeks to resubmit a budget which would improve upon its current plan to incur a deficit of 2.4 percent of Italian GDP (gross domestic product) in 2019.
The spat has raised Italy's cost of borrowing, leading to fears that Italian banks could see their financial position suffer.
Draghi said Thursday that he had "no crystal ball" as to what the level of Italian borrowing cost could reach but he expected Brussels and Rome to come to an agreement.
"These bonds are in the banks' portfolios. They are denting in to the capital position of the banks, that is obvious. But I am still confident an agreement will be found," Draghi said.
He also said that one way for Italian politicians to help banks would be to "reduce the tone" and stop questioning the constitutional framework of the euro.
The ECB president added that there could be spillover from Italian borrowing costs to other countries but he expected it to be limited. As Draghi spoke, Italian bond yields fell.
The interest rate on the main refinancing operation, the marginal lending facility, and the deposit facility sit at 0.00%, 0.25% and -0.40% respectively. The expectation is that these rates remain at their present levels at least through the summer of 2019.
Net asset purchases by the ECB sit at the current monthly pace of €15 billion euro until the end of December, when the central bank has said the buying will stop.
IHS Markit data revealed that the euro zone grew at its slowest rate for over two years in October. The composite output index declined to 52.7 from 54.1 in September. The expected score was 53.9. A reading above 50 indicates expansion.