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ECB fears ‘second-round’ hit to euro zone economy

The euro zone's recovery is in more danger, the European Central Bank (ECB) said in minutes from its latest policy meeting published on Thursday.

"Inflation had continued to be weaker than expected, mainly owing to the renewed sharp fall in oil prices, but also to persistently subdued underlying price pressures. Weaker than anticipated growth in wages, in conjunction with declining inflation expectations, could also signal increased risks of second-round effects," the bank said.


Hannelore Foerster | Bloomberg | Getty Images

The ECB left interest rates unchanged after its January 20-21 meeting, but promised to reconsider policy on March 10, when it meets again. This is viewed as a sign that further policy easing is likely and analysts polled by Reuters expect another 10 basis point cut to the bank's minus-0.3 percent deposit rate.

The central bank could potentially further extend or expand its quantitative easing program as well. In December, it announced a six-month extension to the program, meaning its monthly net asset purchases of 60 billion euros ($67 billion) will continue until at least March 2017.

In its minutes, the ECB said that risks to the euro area's recovery included volatility in financial markets, geopolitical tensions and uncertainty surrounding emerging market growth prospects, as well as weak oil prices.

"Lower energy prices were generally considered to be a supporting factor for euro area demand growth, in particular through their positive impact on household real disposable income and corporate profits. However, it was also cautioned that, from a general equilibrium perspective, the recent decline in oil prices had to be seen against a backdrop of a slowdown in global growth and heightened volatility and uncertainty; hence the net impact could be less positive," it said.

Brent and U.S. (WTI) light crude oil future traded around $35 per barrel and $31.50/b respectively on Thursday, building on this week's slight rebound.

On Thursday, the Organization for Economic Co-operation and Development (OECD) cuts its global growth outlook for 2016 and 2017 by 0.3 percentage points to 3 percent and 3.3 percent respectively.

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