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ECB agrees on new bond buying plan to help struggling euro

CNBC's Simon Hobbs reports the latest details from the ECB's press conference on its bond-buying program to save the euro.

FRANKFURT - The European Central Bank agreed a new bond-buying program on Thursday to lower struggling euro zone countries' borrowing costs which would serve as a "fully effective backstop", ECB President Mario Draghi said on Thursday.

The ECB Governing Council agreed on the "modalities of outright monetary transactions", Draghi told a news conference after the Council's monthly policymaking meeting in Frankfurt.

Seeking to back up his pledge to do whatever it takes to preserve the euro, Draghi said the new bond-buying program, aimed at the secondary market, would "safeguard the monetary policy transmission in all countries in the euro zone area".

It would address bond market distortions and the "unfounded" fears of investors about the irreversibility of the euro.

The scheme, which the Bundesbank is known to have opposed, would be a "fully effective backstop to prevent potentially destructive scenarios", he said.

Related story: Eurozone is running out of options and time to solve debt crisis

"We are strictly within our mandate," Draghi said.

Earlier, the ECB's staff predicted that the eurozone economy will probably contract more than previously expected this year and inflation would be higher than anticipated.

The ECB said it expected a very gradual economic recovery and revised down its forecasts for gross domestic product (GDP) for this year to a fall of between 0.6 percent and 0.2 percent. 

Draghi said the forecasts also showed a range of between -0.4 percent to growth of 1.4 percent.

The bank's previous forecasts three months ago had been between -0.5 to 0.3 percent for 2012 and 0.0 percent to 2.0 percent for 2013.

"We expect the euro area economy to recover only very gradually," Draghi said.

The September macroeconomic projections, however, also raised forecasts for inflation this year to between 2.4 and 2.6 percent from a previous forecast of 2.3-2.5 percent. Prices are seen rising 1.3 to 2.5 percent in 2013, compared with 1.0-2.2 range in the June forecasts.

Draghi said the 17-nation bloc's economy was subject to downside risks stemming especially from the euro zone debt crisis and the tensions that has caused in a number of countries.

Earlier, the ECB kept its main interest rate at a record low level of 0.75 percent.