No deflation in euro zone, says European Central Bank chief

FRANKFURT (AFP) - European Central Bank (ECB) chief Mario Draghi said on Thursday that the euro area is not experiencing deflation - a widespread sustained fall in prices - even though inflation is very low.

"Is there deflation? The answer is 'No'," Mr Draghi told a news conference after the ECB held its key interest rates steady for the third month in a row.

There had been speculation that the ECB could cut its key rates - currently at historic lows - this week after euro zone inflation came in lower than expected in January.

The annual rate of inflation slowed to 0.7 per cent last month from 0.8 per cent in December.

The data fuelled concern that the single currency area could soon slip into a deflationary spiral and Mr Draghi acknowledged such fears.

"The very fact of having low inflation for a protracted period of time is a risk by itself and warrants close monitoring by the ECB," he said.

But he insisted that what the euro area was currently experiencing was disinflation, a period of very low inflation, but not deflation.

"We already acted in November" when the ECB pared back its interest rates to their current ultra-low levels, Mr Draghi said.

And the central bank "continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time.

"This expectation is based on an overall subdued outlook for inflation extending into the medium term," he said.