ECB's Paramo says deflation 'a very far off risk'

MADRID (Reuters) - Deflation is "a very far off risk" in the euro zone and central banks must have different reactions on policy as the economy slows, ECB Executive Board Member Jose Manuel Gonzalez-Paramo said on Monday.

"Coordinated interest rate policy is in general, not justifiable," Paramo said in a speech at a colloquium organised by European Movement in Spain.

"Not all central banks have the same mandate, as an institution, and this calls for different responses," Paramo said, and added: "We have a very clear mandate to preserve medium term price stability, this is our magnetic north."

The ECB targets inflation of below, but close to 2 percent in the medium-term.

"Guaranteeing price stability can also mean cutting interest rates, on occasion, not just raising them," Paramo said.

He also said deflation, or falling prices, in the euro zone is not currently likely.

"This risk is not on the radar of the ECB, it doesn't form part of its central scenario," Paramo said. "It is a very far off risk."

The ECB has cut interest rates by 225 basis points to 2 percent in four moves since October as the economic outlook has weakened, which has dampened the inflation outlook.

"It has been an intense asymmetric response, due to the change in circumstances, a sharp change of economic perspectives, the impact of the financial crisis on the real economy, and weakening inflationary pressure, which in the end is the guide for our policy."

(Reporting by Andrew Hay, writing by Sakari Suoninen; editing by Patrick Graham/Victoria Main)