PARIS - The European Central Bank is watching moves in market interest rates closely and is ready to use any policy option to temper them if needed, its president said on Wednesday.
The central bank was "particularly attentive" to any moves in market rates which could threaten economic recovery or push inflation too low, Mario Draghi told a news conference after the ECB left official euro zone rates at a record low 0.5 per cent.
A majority of economists polled by Reuters expect the ECB to keep its key rate at 0.5 per cent until at least April 2015. They also predict it will serve up another course of long-term cheap liquidity to banks (LTRO), possibly by the end of this year.
Analysts have also not ruled out an interest rate cut.
"With regard to money market conditions, we will remain particularly attentive to developments which may have implications for the stance of monetary policy," Draghi said.
"We are ready to use any instrument including another LTRO if needed."
While the ECB did not have a target for the euro, which is close to a two-year high against a basket of other currencies and could rise further since the US Federal Reserve decided not to begin winding back its money-printing programme, Draghi said it was monitoring its potential impact on the currency bloc's economy.
"The exchange rate is not a policy target for the ECB ... However, the exchange rate is important for growth and for price stability, and we are certainly attentive to these developments."
The ECB has grown concerned about market rates, which moved higher over the summer at the prospect of the Federal Reserve unwinding its stimulus.
Seeking to guide them down, the ECB said in July it would keep its rates at current or lower levels for an "extended period". That forward guidance, which Draghi reaffirmed on Wednesday, struggled to gain traction until the Fed last month delayed any action.
Excess liquidity - the amount of money beyond what the banking system needs to function - has fallen to 221 billion euros from over 800 billion early last year, approaching a level expected to push market rates closer to the ECB's main rate.
The excess has fallen as banks repay the LTROs they took from the ECB in late 2011 and early 2012 and the ECB is concerned that higher short-term market rates that banks use when lending to each other could hurt the euro zone's recovery and push inflation further below target.