* ECB's Coeure doesn't see deflation as economy is improving

* Disinflation to extend into medium term

* ECB unexpectedly cut rates to record low this month

By Leika Kihara and Stanley White

TOKYO, Nov 25 (Reuters) - A senior European Central Bank official said slowing price growth, or disinflation, in Europe is likely to continue for now, but will not progress to deflation because the economy is recovering and inflation expectations remain anchored around 2 percent.

Executive board member Benoit Coeure said Europe's economy is stabilising and the banking sector is strengthening, but policymakers need to make progress with structural reforms to bring down unemployment and encourage business investment.

With euro zone inflation running at 0.7 percent, well below its target of just under 2 percent, several ECB members have said they are open to taking new steps to prevent deflationary pressure from harming the economic outlook.

"We did not act because we see deflation risks materialising in the euro area," Coeure said. "Rather, we acted because we wanted to keep a sufficient safety margin above zero percent inflation."

A slowdown in inflation in the euro zone prompted the ECB to cut its main refinancing rate to a record low of 0.25 percent earlier this month, but a more conservative minority at the bank voted against this move, raising concerns about a split within the bank.

Because the euro zone economy is growing again, inflation will very gradually return to a level that is close to but below 2 percent, Coeure said, but added monetary policy alone cannot ensure a sustained economic recovery.

Deep structural reforms are also needed to raise the potential growth rate and avoid a vicious circle where low growth expectations cause companies to delay investment, which would further lower potential growth, he said.

Last week ECB President Mario Draghi poured cold water on a media report that the ECB was actively considering taking its deposit rate - now at zero - into negative territory.

This move would see the ECB effectively charging banks a fee to hold their money overnight, and could possibly encourage banks to lend more, which could ease deflationary pressure.

The euro fell against the dollar and the yen last week a after the media report was published.