ECB raises prospect of March policy easing as outlook sours

Thu Jan 21, 2016 12:12pm EST
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By Francesco Canepa and John O'Donnell

FRANKFURT (Reuters) - Fading growth and inflation prospects will force the European Central Bank to review its policy stance in March, President Mario Draghi said on Thursday, a strong signal that more easing could be coming within months.

Global market turmoil, plunging oil prices and weaker growth across emerging markets are quickly increasing economic headwinds for Europe so the ECB will need to be ready to use any possible instrument as inflation risks turning negative and growth slows, Draghi said.

The unexpectedly strong comments weakened the euro by nearly 1 percent and markets quickly priced in a rate cut for March, three months ahead of previous forecasts, concluding that Draghi all but promised action, much like in October when he set up a December rate cut and an extension of the ECB's asset-buying program.

Bolstering market hopes of more support, Draghi added that the ECB was unanimous in its communication stance on Thursday, a contrast to December when several notable hawks voted against policy easing.

"Downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks," Draghi told a news conference. "We are not surrendering in front of these global factors."

Financial and commodity markets have been shaken by a further collapse in oil prices, signs that China's economy is losing momentum and, more recently, worries about the health of banks in Italy and other weaker euro zone economies.

Dismissing concern that the ECB's policy arsenal is all but empty, Draghi said: "We have the power and willingness and determination to act. There are no limits to how far we are willing to deploy our (monetary) instruments."


European Central Bank (ECB) President Mario Draghi waits for the start of a eurozone finance ministers meeting in Brussels, Belgium, January 14, 2016.    REUTERS/Francois Lenoir