FRANKFURT — The European Central Bank on Thursday held interest rates steady, but signaled that it was likely to take action next month to stimulate the euro zone economy, amid growing concern about economic fallout from the crisis in Ukraine.
Mario Draghi, the president of the central bank, said Europe would suffer from effects like a decline in the Russian economy, stiffer economic sanctions or higher gas prices.
“It’s a very complex geopolitical picture, which could evolve,” Mr. Draghi said at a news conference in Brussels. “If it does evolve, the euro zone and European Union are going to be impacted more than other parts of the world.”
Although the central bank left its benchmark interest rate unchanged at 0.25 percent, Mr. Draghi said there was agreement among members of the governing council, which sets monetary policy, that something should be done to counteract very low inflation, which some economists see as a grave threat to the euro zone economy.
“There is consensus about being dissatisfied with the projected path of inflation,” Mr. Draghi said. “There is a consensus about not being resigned and accepting this as a fact of nature.”
There was also concern about the euro exchange rate, he said. On Thursday, the euro neared $1.40 as investors sought refuge from turmoil elsewhere in the world. A strong euro makes products from the euro zone more expensive in foreign markets, and tends to push inflation down even further because imported goods become cheaper.
“The strengthening of the euro in the context of low inflation and still low levels of economic activity is a cause for serious concern in the view of the governing council,” Mr. Draghi said.
Mr. Draghi did not say, however, what action the European Central Bank might take to stimulate the economy. And he left an escape hatch, saying that the governing council wanted to wait for the next round of economic projections by the bank’s experts, due before the next monetary policy meeting on June 5. Mr. Draghi’s statement suggested that the central bank might not act after all if the forecasts point to higher inflation.
“The governing council is comfortable with acting next time,” Mr. Draghi said, but he added, “we want to see the staff projections.”
Having raised expectations, though, Mr. Draghi might strain his credibility if the central bank does nothing next month.
“Draghi has pushed the E.C.B. into a corner from which it will be very hard to escape,” Carsten Brzeski, an economist at ING Bank, said in a note to clients.
Also on Thursday, the Bank of England kept interest rates at a record low. The bank’s Monetary Policy Committee left its benchmark interest rate at 0.5 percent, where it has been since the depths of the financial crisis more than five years ago.
While many economists have called for more decisive action from the European Central Bank to stimulate the euro zone economy, members of the bank’s governing council have appeared reluctant to deploy the more radical measures that would be required to do so.
Mr. Draghi said Thursday that the bank was committed “to using also unconventional instruments within its mandate,” a reference to so-called quantitative easing — large purchases of bonds or other financial instruments to pump money into the economy. Most analysts, though, expect the central bank to cut its main interest rate closer to zero before taking more radical steps.
Annual inflation in the euro zone was 0.7 percent in April, according to an official estimate, which is well below the central bank’s target of close to 2 percent. Such low inflation is risky, some economists say, because it leaves the euro zone vulnerable to a ruinous downward price spiral known as deflation that might be set in motion by some sort of shock, like a worsening of the crisis in Ukraine.
Modest inflation is considered healthy, in part because it eases the burden on debtors in a region where many countries, companies and individuals are having problems repaying their loans.
The problem facing the central bank is that, while it is standard practice to keep a lid on excess inflation by raising rates, inducing an increase in inflation is much more difficult. It might require the bank to use measures that have never been tested in the euro zone, like huge purchases of government bonds or other assets.
Mr. Draghi said in April that the bank was prepared to make asset purchases, a strategy similar to the quantitative easing, or Q.E., used in the United States by the Federal Reserve. But most analysts did not expect the central bank to take action yet.
Spain, Portugal and Ireland show clear signs that they are emerging from the crisis. But unemployment remains high and credit remains tight for businesses in those and other countries, like Greece and Italy.
Some analysts say that the central bank faces too many constraints to be able to deploy quantitative easing. There is no Pan-European debt instrument similar to the Treasuries that the Fed bought as part of its program, for example. There are also legal restraints on the European Central Bank that do not bind the Fed.
“If the E.C.B. could have bought bonds in a traditional Q.E. operation,” Carl B. Weinberg, the chief economist at High Frequency Economics in Valhalla, N.Y., said in a note, “it would have done so already.”
Mr. Draghi said the bank’s governing council had received a “positive presentation” earlier on Thursday on the progress made by some of the countries hardest hit during the crisis. The briefing was by Jeroen Dijsselbloem, the finance minister of the Netherlands who is also serving as the head of the so-called Eurogroup of ministers from the countries that use the euro currency.
“Societies have changed, and the recovery has started,” said Mr. Draghi, who cited a drop in unemployment in Portugal last year. “Efforts which were so painful, and for such a long time, are producing now some positive outcomes.”
Euro zone countries lately have been moving ever closer to joint oversight of their economies and banking systems, hoping to prevent a rerun of the crisis that nearly sank the euro. But questions remain about how much further member states should go in a number of areas, including whether to create a permanent post to lead the Eurogroup, rather than the current part-time position.
Although Mr. Draghi declined to say whether he favored creating a full-time position at the head of the Eurogroup, he said that the progress on banking reform and economic growth showed that “the European way of decision-making that takes place in the Eurogroup is good.”
“Our crisis would not have been as severe as it has been if we had had more integration, not less integration,” he said, “and our future lies with more integration.”
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