Turbulence in the financial markets and concerns about China and other emerging markets will lead to a revision of the monetary policy by the European Central Bank in March, said the ECB President Mario Draghi on Thursday, hinting at the possibility of a new easing.
The euro fell against the dollar when Draghi told reporters that rates are likely to "remain at current or lower levels for a longer period."
"At the beginning of the new year, the downside risks have increased again amid increased uncertainty about growth prospects in emerging markets, the volatility of the financial and commodity markets, and geopolitical risks," - he said.
"Thus, it will be necessary to review and, perhaps, to rethink our position on monetary policy on the next meeting in early March," - he said, making it clear that the ECB could act sooner than expected by many market participants.
Many analysts predicted a decline in deposit rates by 10 basis points from the current -0.30 %, but no earlier than June.
In December, the ECB Governing Council lowered the deposit rate and expanded program of buying assets amounting 1.5 trillion euro.
Speaking in defense of these measures, which did not meet expectations of investors, Draghi said that they were "quite acceptable and effective" under the circumstances known at the time, pointing out that since then oil prices have fallen at least 40 %.
December forecasts of the ECB were based on the fact that the oil price will make this year an average of $ 52.2 per barrel, but Brent crude is now trading around $ 28 per barrel and even oil futures for 2022 are below $ 50 a barrel, suggesting that the market does not believe in rapid recovery in prices.
Although Draghi says euro zone economic recovery continues, he acknowledged that the risks of the ECB forecast are "leaning to the downside," pointing to the fragility of the global economy and geopolitical risks.
The weakening of the Yuan will get China's deflationary risks beyond the country and reduce the effectiveness of any rate cuts, limiting the ability of the ECB to weaken the euro.
In addition, the weakening in China may force the US Federal Reserve to slow the rate of increase in the key rate, which will push up the euro.
However, despite the crisis in the financial markets, Draghi said he believes in the power of the banking system in the Eurozone.