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Draghi's comments come as Europe's leaders appear to be reconsidering harsh austerity as a way of combating the crisis. While governments are still under pressure to cut deficits, eurozone finance ministers meeting earlier this week indicated they were now willing to give countries more time to meet European Union requirements that they close their deficits, lessening the impact of cuts on growth. Draghi said the ECB's latest, lower, economic forecast for this year was due to the impact of a worse-than-expected contraction of 0.6 percent in the fourth quarter carrying over in this year. He said his forecast for a gradual recovery in the second half of the year "remains unchanged." Also Thursday the ECB decided to leave its key rate unchanged at a record low of 0.75 percent. The economy is weak enough for another rate cut, economists say, and inflation is low at 1.8 percent, meaning there's little risk a cut would worsen inflation. The ECB maintains that its monetary stance is "accommodative," meaning interest rates are low enough to spur growth. Since Draghi took over as ECB president in November 2011, the bank has cut rates, flooded the banking system with cheap credit, and shored up government bond prices by offering to purchase unlimited quantities of bonds for countries that agree to reduce their deficits. Nonetheless, the ECB has not gone as far as the Bank of England, Bank of Japan and the U.S. Federal Reserve, all of which have pumped newly created money into their financial systems to try to boost asset prices and spur growth. Unlike the Fed, the ECB's mandate is to focus on controlling inflation first, and only then think about reducing unemployment. Yet with inflation low, it is free to consider further moves. Draghi held the door open to another rate cut, saying the bank "never pre-commits." Yet he and other top bank officials have questioned how much more good another cut would do since rate are already very low. The bank's top official for economic forecasts, Peter Praet, has cautioned that the bank could face diminishing returns and need to apply larger and large doses of stimulus if it carries its policies too far.
[Associated
Press;
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