The European Central Bank on Thursday unveiled its latest crisis-fighting tool to help lower the borrowing costs for troubled nations as any further deterioration of the euro area sovereign debt crisis threatens to hurt the already weak economy.

While presenting his introductory statement in the regular post-decision press conference in Frankfurt, Draghi announced the ECB's new bond buying programme would embark on "outright monetary transactions" or OMTs which will allow the bank to purchase sovereign bonds in the secondary markets.

"We need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area," Draghi said. The aim is to safeguard an appropriate monetary policy transmission and the singleness of the monetary policy, the bank said.

"OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro," Draghi said.

"Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area."

The central bank of 17-nations will consider an OMT only when there is a request from a country. The size of OMTs is unlimited and sovereign bonds with maturities up to three years only would qualify.

Further, the bank said the liquidity created through OMTs would be 'fully sterilized', implying that it would absorb these to prevent any impact on the money supply. Also, the ECB welcomed same treatment as others creditors, suggesting that the bank will not gain seniority over private creditors.

The OMTs will come with 'strict and effective' conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme, the bank said separately. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme(Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases, it added.

The involvement of the International Monetary Fund will also be sought to help in formulating the conditions and monitoring of the bailout programmes. The ECB also reserves the right to terminate the OMTs if any beneficiary nation fails to comply with the full or precautionary bailout programme.

The ECB also said it is terminating its earlier bond purchase plan known as the Securities Market Programme or SMP, following the decision to create the OMTs. The bank will continue to absorb the liquidity injected through the SMP, and the existing securities in the SMP portfolio will be held to maturity.

"We act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible," Draghi said.

Responding to reporters' questions, Draghi noted that today's Governing Council decision was not unanimous. "There was a dissenting view," he said, while refusing to reveal more regarding the matter. In the run-up to today's meeting, the rift between the ECB and Bundesbank had deepened so much that the German central bank's chief Jens Weidmann considered resignation several times, a tabloid reported last week.

He urged the Eurozone governments to hasten fiscal consolidation and structural reforms to restore investor confidence. "Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist - with strict and effective conditionality in line with the established guidelines," the ECB Chief said.

Germany's Constitutional Court is set to rule on the compatibility of the euro area permanent bailout fund called the European Stability Mechanism on September 12. Spanish Premier Mariano Rajoy and German Chancellor Merkel are set to meet later today to gauge support for a bailout.

The central bank today decided to leave the interest rates unchanged for the second consecutive month as it expects inflation to stay above 2 percent through 2012. The underlying pace of monetary expansion remains subdued and euro area growth is likely to remain weak, the bank said.

The latest ECB staff macroeconomic projections were released today. The bank cut the 2012 growth outlook range to between -0.6 percent and -0.2 percent. The 2013 forecast was slashed to between -0.4 percent and 1.4 percent. The risks surrounding the economic outlook for the euro area are assessed to be on the downside, the ECB said.

Meanwhile, the inflation forecast for 2012 was raised to between 2.4 percent and 2.6 percent. The outlook for 2013 was hiked to between 1.3 percent and 2.5 percent. The bank said risks to the outlook for price developments continue to be broadly balanced over the medium term.

The ECB also decided to relax the collateral rules for banks to make it easier for them to access central bank loans.

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