LONDON - THE head of the European Central Bank (ECB), Mr Jean-Claude Trichet, said on Tuesday that he had not yet seen deflation trends in the euro zone, which has taken a hit from the global financial crisis.

'I don't see yet trends of deflation in the euro area,' he said in a question and answer session after a speech at the Royal Institute of International Affairs think tank in London.

Mr Trichet also said fiscal stimulus plans were a good way to lift the economy for those who could afford it, although he stressed that European Union countries must stay within EU borrowing rules.

He was asked about the ECB's decision to cut its main lending rate by half a percentage point to 3.25 per cent this month, a relatively conservative move compared to the Bank of England's record 1.5-point-cut to 3.0 per cent.

'On both sides of the Atlantic as well as on both sides of the Channel, we are doing what is judged to be necessary in various situations,' he said.

Mr Trichet repeated that the ECB would 'continue to decrease rates if necessary', adding: 'We have to be totally pragmatic and be as close as possible of the facts and figures.'

He warned against the dangers of deflation, saying: 'We are not in a situation characterising deflation but we have to look at the risks and... draw the consequences.'

The ECB president meanwhile noted the distinction between deflation, characterised by a general fall in prices and the money supply, and the simple slowing of inflation.

On Monday, British Prime Minister Gordon Brown warned of a risk of deflation - a fall in prices that can stifle growth - in his country next year.

'While last year and in the last few months the problem has been inflation, and we've had inflation combined with the credit crunch, in the next year the problem is deflation,' Mr Brown said.

Mr Trichet refused to comment directly on Britain's plans to borrow to boost public spending, saying only that as part of the EU, it had signed up to the Stability and Growth Pact which says countries must not have a budget deficit above three percent of gross domestic product (GDP).

'It is very important to have a framework at the level of the EU,' he said, adding: 'Let's apply the flexibility that this framework allows.'

Speaking about countries across the world, he said that 'for those who have the room to manoeuvre, it is good to use this room'.

For others, 'let's not forget that you might have an absence of confidence, and confidence is really what is lacking at the moment.'

On Saturday, International Monetary Fund chief Dominique Strauss-Kahn said the fund would be pressing for more stimulus plans worldwide and that they should be around two percent of a country's GDP. -- AFP