European Central Bank (ECB) President Mario Draghi said the ECBcould take action to counter low inflation as soon as next month,when more data on the euro area's economy will be available.

“We are willing and we are ready to act,” Draghi said inFrankfurt today after the ECB left its benchmark interest rate onhold at a record-low 0.25 percent. “The reason for today's decisionnot to act has really to do with the complexity of the situationthat I described and the need to get more information.”

The ECB will publish quarterly macroeconomic forecasts nextmonth, including its first inflation prediction for 2016, which inthe past have provided supporting evidence for further easing.Draghi is trying to guide the euro area through a fragile recoveryand an extensive health check of the banking system, as well asnegotiate the global market swings sparked by the U.S. FederalReserve's decision to taper its own stimulus.

“The door to further steps remains wide open as headlineinflation stays weak,” said Christian Schulz, senior Europeaneconomist at Berenberg Bank in London. “If ECB staff come to theconclusion that inflation will stay significantly below target wellinto 2016, the ECB could go further and cut rates.”

The euro climbed the most in two weeks as Draghi spoke, risingas high as $1.362 from $1.35 at the start of the press conference.The yield on Germany's two-year government bond climbed about 5basis points to 0.142 percent.

Inflation in the 18-nation euro area unexpectedly slowed to 0.7percent last month, matching the slowest pace since 2009 and lessthan half the ECB's goal of just under 2 percent. The last time thefigure was that weak was in October, when it contributed to asurprise November rate cut.

“We remain firmly determined to maintain the high degree ofmonetary accommodation and to take further decisive action ifrequired,” Draghi said. “We firmly reiterate our forward guidance.We continue to expect the key ECB interest rates to remain atpresent or lower levels.”

Sterilization End

Draghi said that ending the absorption of crisis-era bondpurchases to steer against money-market volatility is “one of themany instruments” that the Governing Council is looking at, withoutsaying that it was discussed at this meeting. The ECB president hassought support from the Bundesbank in publicly backing thesterilization, which was introduced with the now-defunct SecuritiesMarkets Program to appease an inflation-wary German public.

Ending operations to soak up money created by purchases of bondsfrom Greece to Italy starting in 2010 would double excess liquidityin the system. That could help to curb volatility in marketinterest rates and reduce banks' incentive to keep cash at the ECBrather than lend it on. Draghi has said the Frankfurt-basedinstitution is ready to act if money-market rates are unwarrantedor the medium-term outlook for inflation worsens.

While swings in interbank borrowing costs have eased in recentdays, Draghi said the central bank is still attentive. The ratethat banks charge each other overnight, known as Eonia, fell to0.13 percent on Feb. 4, the lowest level in a month. It surged ashigh as 0.36 percent on Jan. 20 and was above the ECB's benchmarkfor four straight days in January, the longest run since 2011.

Economic indicators have also improved. Gauges of euro-areamanufacturing and German business confidence are at the highestlevels in two and a half years. An ECB survey showed the region'sbanks expect to stop tightening corporate credit standards thisquarter, a move that could help rekindle lending.

“Signs of improvement in activity are encouraging,” saidAnnalisa Piazza, a fixed-income analyst at Newedge Group in London.“This is one of the reasons behind today's 'wait and see'approach.”

The currency bloc's economy and financial markets have becomemore robust in the face of external risks such as the slowing of developing economies like China or Brazil and theFed tapering, Draghi said.

“The euro-area economy and euro-area financial markets haveshown a good deal of resilience,” Draghi said. “This is a modestrecovery that is showing somewhat more encouraging signs.”

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