Mario Draghi could hardly have been clearer this afternoon. Last month the European Central Bank disappointed markets when a boost to its stimulus programme came well short of expectations. Six weeks on, the ECB chief now talks of a further expansion in March.

This is significant. Markets have been in uproar since the start of the year, dropping to “bear” territory from “correction” mode as concern grows that the slowing Chinese economy could be on its way to a hard landing. China’s woes are weakening demand for oil as the its price slides to levels not seen for more than a decade, further eroding the already-low inflation outlook in the euro zone.

Thus Draghi, who was criticised in December for not pushing the ECB further, repeated more than once that the bank would take stock again in March. As downside risks intensify, Draghi cast this as a matter of credibility for the ECB.

“The economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms,” he said.

“Now these conditions have worsened, and I think the credibility of the ECB would be harmed if we were not ready to review and possibly reconsider our monetary policy stance when we will have full information.”

No limit

Draghi did not specify what actions were in play, but reiterated the argument he made after the last ECB package that “there cannot be any limit to how far we are willing to deploy our instruments” within the bank’s mandate. With Ireland’s general election only weeks away, all of this suggests the troubles China and other emerging markets are not so far away. Hope that new year volatility would simply fade away is dissipating rapidly.

Still, there was no actual change today in the ECB’s stance. It kept its deposit rate at minus 0.3 per cent - a measure to dissuade commercial banks from hoarding their cash in the ECB have - and its main refinancing rate at 0.05 per cent, a record low.

In coming weeks, no doubt, there will be plenty of speculation on whether the ECB will again cut the negative deposit rate or magnify or extend its bond purchasing programme. Although Draghi was adamant that ECB governors did not discuss specifics today, he said they want absolute confidence that there are no technical limits to the size of whatever deployment comes next.

In the immediate sense, however, what is most striking is the clarity of Draghi’s signal of his anxiety about rocky conditions in the external world and their implications for the euro zone. The ECB chief could hardly but be concerned but it was notable that he did not seek to brush it all off as a temporary bout of jitters.

‘Circumstances have changed’

“The measures we decided in December were entirely appropriate - and have been effective -- based on the circumstances that were prevailing at that time. Since then these circumstances have changed,” he told reporters.

“As we start the new year, downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets and geopolitical risks.

“These risks have the potential to weigh on global growth and foreign demand for euro area exports and on confidence more widely.”

With euro zone inflation at 0.2 per cent in December, far off the official target of below but close to 2 per cent, Draghi said the expected inflation path is now “significantly lower” compared with the outlook in early December.

Citing a 40 per cent drop in the oil price since the last ECB meeting, Draghi also expressed concern about a later “second round” impact from the oil price which could prompt declines in the price of other goods and services, or wages.

Vigilant

“We have to take seriously that low commodity prices may actually have second-round effects that we definitely want to take action against. We have to be vigilant about that.”

Note that “vigilant” ranks among key ECB code words. Under Draghi and his predecessor Jean-Claude Trichet, the bank has often deployed the word to signal imminent action. In the circumstances, it’s not a surprise.

“Inflation rates are currently expected to remain at very low or negative levels in the coming months and to pick up only later in 2016.”

This is noteworthy, for it was the very fear of deflation which finally prompted the ECB to initiate its quantitative easing programme one year ago.