The European Central Bank (ECB) left its key interest rates unchanged but held out the prospect of further easing in March in response to "heightened uncertainty about emerging market economies' growth prospects, volatility in financial and commodity markets, and geopolitical risks."
The ECB, which disappointed many investors in December by only cutting its deposit rate by 10 basis points and extending its asset purchases program by six months to end-March 2017, said the risks to growth in the 19-nation euro area remain to the downside, with the potential to affect its exports and weigh on confidence.
"It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March, when the new staff macroeconomic projections become available which will also cover the year 2018," said ECB President Mario Draghi.
The ECB governing council will meet on March 10 and in its latest forecast from December, ECB staff kept its 2016 growth forecast steady at 1.7 percent and forecast 1.9 percent growth for 2017. Inflation was forecast at 1.0 percent this year and 1.6 percent in 2017.
On December 3, 2015 the ECB cut its deposit rate by 10 basis points to minus 0.30 percent but left the benchmark refinancing rate steady at 0.05 percent.
Despite downside risks to euro area growth, Draghi said the ECB's measures since mid-2014 were working as economic activity, credit provision and financing conditions have improved, helping strengthen the euro area's resilience to global economic shocks.
But inflation in the euro area was still only 0.2 percent in December, well below the ECB's target for inflation that is below but close to 2.0 percent.
Inflation in December was lower than expected, Draghi said, adding this was mainly due to the sharp decline in oil prices, lower prices for food and services.
"On the basis of current oil futures prices, which are well below the level observed a few weeks ago, the expected path of annual HICP inflation in 2016 is now significantly lower compared with the outlook in early December," Draghi said.
Although inflation is expected to recover, helped by the economic recovery, Draghi said second-round effects of low inflation should be monitored closely.
The euro area's Gross Domestic Product expanded by 0.3 percent in the third quarter from the second quarter for annual growth of 1.6 percen, up from 1.5 percent in the second quarter.
The exchange rate of the euro, which fell sharply from May 2014 to March 2015, has been largely stable this year. In response to Draghi's statements, the euro eased to 1.08 to the U.S. dollar but was largely unchanged since the beginning of the year.
The European Central Bank released the following introductory statement to its press conference by President Mario Draghi:
"Ladies and gentlemen, first of all let me wish you a Happy New Year. The Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.