During this month’s monetary policy meeting held last Thursday, the European Central Bank (ECB) left its key interest rate unchanged at 0.05 per cent, as expected. The overnight deposit rate was left at -0.3 per cent.

At the December meeting, the rate had been cut from -0.2 per cent in an attempt to induce banks to lend instead of depositing money with the ECB. At that time, the ECB had also extended its monthly €60 billion stimulus programme by six months to March 2017.

In a press conference after last week’s meeting, ECB president Mario Draghi said that downside risks in the eurozone economy have increased since the start of the year and the central bank will possibly reconsider its policy stance in March.

In the meantime, the International Monetary Fund (IMF) cut its global growth forecasts for the third time in a year, citing a sharp slowdown in China trade, weak commodity prices and rising interest rates in the US.

The IMF now predicts that the world economy will grow by 3.4 per cent in 2016 and by 3.6 per cent in 2017, both years down 0.2 percentage point from the previous estimates, adding that policymakers should be considering ways to bolster short-term demand. The IMF report also said that continued market upheaval could drag growth lower if it leads to major market risk aversion and currency depreciations in emerging markets.

Finally, US consumer prices unexpectedly fell in December as energy prices plummeted and the cost of services rose moderately, a trend that, if sustained, suggests that inflation could take longer than expected to rise toward the Federal Reserve’s target.

A report published by the Labour Department last week showed that the Consumer Price Index (CPI), a key gauge of inflation, edged down 0.1 per cent after being unchanged in November. Despite the drop, the CPI increased 0.7 per cent in the 12 months to December, the biggest increase in a year. This rise followed a 0.5 per cent gain in November.

The year-over-year inflation rate is rising as the effects of falling oil prices in 2015 drop out of the calculation. Economists had forecast the CPI to remain unchanged last month and rising 0.8 per cent from a year ago.

This report was compiled by Bank of Valletta plc for general information purposes only.