E.C.B. Holds Rates at Record Low but Is Ready to Consider Further Steps Draghi Statement on European Economy CNBC coverage of statements by Mario Draghi, president of the European Central Bank, on the decision to leave interest rates unchanged at record low levels. FRANKFURT - The European Central Bank is ready to take decisive action to keep Europe's tentative recovery afloat, the bank's president, Mario Draghi, said Thursday after the bank left interest rates unchanged at a record low. Mr. Draghi said at a news conference following the rates announcement that the central bank was "ready to consider all available instruments" to address either further weakness in consumer prices or increases in short-term money market rates that could put stress on banks. He did not specify what tools he would use. The central bank's Governing Council, which sets monetary policy for the 18-nation euro zone, surprised the market in November by cutting its benchmark rate to 0.25 percent, a record low, from 0.5 percent. Economists had not expected the E.C.B. to take any further action on Thursday, but they said they believed there was a significant chance it would act again in the coming months to guard against an outright decline in prices. The fear is that low inflation could turn into deflation, a widespread and sustained fall in prices that can be economically debilitating and hard to reverse. The allusion to money markets referred to the ready availability of cheap, short-term loans to and between banks. Interest rates on such money spiked last month but have since fallen back. Carsten Brzeski, an economist at ING Bank in Brussels, said the central bank wanted to be certain that lenders did not face short-term funding pressures over the course of this year, when they will undergo tests of their financial soundness by the E.C.B. as part of its new supervisory role over the euro zone's biggest banks. The E.C.B. will be balancing those concerns against various signals that the zone's financial and economic crisis may finally be ending. On Thursday, the optimists" case was reinforced by news of a rebound in German industrial production in November and a report from the European Commission showing that businesses and consumers were more confident in December. There were also more promising signs in the bond market, where Spain tapped investors for the first time this year, meeting with solid demand and selling 5.3 billion euros, or about $7.2 billion, of debt at favorable rates. Spain's 10-year yields fell to 3.75 percent, their lowest level in four years. Investors also showed strong interest in an offering of Portuguese debt, as an improved economic outlook makes buyers willing to accept somewhat lower - though still attractive - interest rates on bonds from euro zone countries they had been leery of in recent years. Earlier this week, Ireland, which required a bailout in 2010, also carried out a successful bond auction. But Mr. Draghi, asked Thursday if the euro crisis was over, was guarded in his reply. "The recovery is there, but it's fragile," he said. The best that can be said about the job market, for example, is that unemployment does not seem to be getting worse. "We want to see confidence staying for a relatively long time before we declare victory," Mr. Draghi said. In Britain, which is outside the euro zone, the Bank of England on Thursday left its benchmark interest rate unchanged at a record low of 0.5 percent, as the British economy continued a slow recovery. The meeting of the E.C.B.'s Governing Council came after a report this week from Eurostat, the European Union's statistics agency, that showed the euro zone inflation rate falling to 0.8 percent in December. That is far below the E.C.B.'s target of just under 2 percent. And it is low enough to raise fears that Europe could be on the verge of an across-the-board decline in the general price level. Mr. Draghi has recently warned about the danger of an inflation rate that gets entrenched below 1 percent, creating the sort of situation that caused Japan's "lost decade" of poor growth and economic pain. At his news conference Thursday, he played down the significance of the most recent inflation number, saying the unexpectedly low figure was partly due to a "quirk" in the way the German portion of the data was calculated. He said the January numbers would give a better indication of price trends. Mr. Draghi said that even the negative price trends in some euro zone countries - like Cyprus - were in some cases not really the broad-based "self-fulfilling, self-feeding" deflation that stalked Japan in the 1990s, but were rather "part of a necessary rebalancing." Mr. Brzeski, the ING economist, said it appeared that Mr. Draghi was now trying decouple extremely low inflation and more E.C.B. action. "It's verbal intervention right now, pretending you're strong and flexing your muscles," Mr. Brzeski said. But it may be that within the Governing Council, "there is no consensus on what to do or even what the main problem is," he added. With the region's unemployment rate stuck at 12.1 percent since last April, the pressure may rise on the central bank to take action sooner or later. Mr. Draghi acknowledged Thursday that a further slowing of inflation or higher money-market rates could be triggers for further moves by the central bank. "The risks surrounding the economic outlook for the euro area continue to be on the downside," he said. With interest rates, the traditional lever of monetary policy, already effectively at zero, the E.C.B. might have to find other means of stimulating the economy. The euro zone emerged from recession in the second quarter of 2013, and the central bank expects anemic economic growth of 1.1 percent this year. The meeting Thursday was notable for being the first at which Latvia was formally seated on the Governing Council. Ilmars Rimsevics, the governor of the Bank of Latvia, represented his country, which on Jan. 1 became the 18th nation to join the single currency. Despite the cheap money on offer to banks, including in the form of low-interest, long-term loans from the E.C.B., credit is not getting through to companies and households. The central bank said last week that lending to businesses in the euro zone shrank 3.9 percent in November from a year earlier, the biggest decline it has ever recorded. The E.C.B. could offer more cheap loans on the condition that banks lend to businesses. Another option would be to penalize financial institutions for depositing funds at the E.C.B. by offering negative deposit rates, spurring them to put more money into the economy. It could also buy the debt of small and midsize businesses in hopes of jump-starting the flow of credit. Marie Diron, an economist who advises the consulting firm Ernst & Young, predicted that the questions of deflation and the divergence within the euro zone, in which businesses in weaker member states must pay more for credit, would dominate the central bank's thinking in the next few months. There is "a risk that the euro zone as a whole slides into a protracted period of falling prices," Ms. Diron wrote in a research note before the Governing Council met. While we do not think that the euro zone will fall into deflation, this risk calls for strong pre-emptive action by the E.C.B. The United States Treasury secretary, Jacob J. Lew, who made rapid stops in Paris, Berlin and Lisbon on a two-day trip this week, urged European leaders - particularly in Germany - to focus on domestic demand. American officials believe it is essential that Europe act to pick up slack in the world economy as the Federal Reserve begins reducing its monthly purchases of bonds this month. Asked about Mr. Lew's call for measures to bolster demand, Mr. Draghi quoted Abraham Lincoln as having said, "You cannot make the weak stronger by making the strong weaker." Such criticism is misplaced, he added, because "all of the euro members benefit from Germany's strength."