In a meeting yesterday, ECB President Mario Draghi emphasised that it will respond vehemently to the collapse in oil prices that is decelerating Eurozone inflation when the ECB governing council meets again in March.

Principal Global Investors have released their latest economic insights paper by Managing Director of Global Research and Strategy Indraneel Karlekar, looking into the inflationary conditions and slowed market growth that has activated the ECB’s next steps.

Key insights include:

The dropping of crude oil prices by almost 40%, coupled with Eurozone inflation of only 0.2% in December has resulted in a global oversupply of oil, indicating that the price of Brent in 2016 is likely to stay significantly below 2015 levels

Given current weaker Eurozone inflation dynamics and heightened uncertainty about China, along with significant market volatility, President Draghi has acknowledged the increased downside risk. Stating that key ECB interest rates and asset purchase policies will remain in place, or even be lowered and expanded for a substantial period of time

The ECB has signaled the likelihood of additional policy steps in March, signaling the lowering of the bank deposit rate to -.40% from -.30%, and raising its monthly asset purchases, potentially by euro 20 billion to euro 80 billion as the most likely steps

Despite the gloomy state of the global economy, the U.S. labor market has continued to stand firm, with further tightening in the labor market having the potential to push on wages and start to show in measures of inflation

To read the full report, click here.

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