ECB sticks with its stimulus measures

The ECB's Frankfurt headquarters. Though inflation is now above target, ECB president Mario Draghi says political risks could knock euro zone recovery off-course.
The ECB's Frankfurt headquarters. Though inflation is now above target, ECB president Mario Draghi says political risks could knock euro zone recovery off-course.PHOTO: REUTERS

Refinancing, deposit rates stay the same even as inflation rises

FRANKFURT • The European Central Bank (ECB) kept its quantitative-easing programme unchanged yesterday, as policymakers gauge whether a recent jump in inflation will endure.

The Governing Council reaffirmed its decision that monthly asset purchases will be reduced to €60 billion (S$90.1 billion) from April, compared with €80 billion now.

Policymakers also left the main refinancing rate at zero and the deposit rate at minus 0.4 per cent, as predicted by all economists in a Bloomberg survey.

The ECB said rates will stay at present or lower levels for an extended period, and well past the horizon of net asset purchases.

The euro fell to US$1.0551 at 1.49pm Frankfurt time (8.49pm, Singapore time).

Exactly two years after the ECB started buying euro zone government bonds, inflation is above its goal and calls to reduce the stimulus are mounting.

ECB president Mario Draghi has sought to defuse the pressure by pointing out that price acceleration is largely driven by energy costs and that political risks - including national elections - have the potential to knock the recovery off course.

Economists are already beginning to map out a timeline for the end of stimulus, with policymakers seen to be waiting until at least June before upgrading their assessment of the risks to the euro zone recovery, according to most respondents in a Bloomberg survey.

It will take until at least the end of next year, and possibly into 2019, before the ECB starts to remove stimulus in earnest and raise interest rates.

The decision comes as the Netherlands prepares for March 15 elections, with the Eurosceptic Freedom Party among the contenders to place first.

Two days later, Group of 20 finance chiefs will seek a better sense of any United States trade protectionism when they meet.

Britain is planning to start formal negotiations over leaving the European Union this month.

A chief concern is France, where Ms Marine Le Pen has promised to renegotiate the country's membership in the EU if she is elected president in May.

Germany, also facing a rise in populist sentiment, heads to the polls in September.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 10, 2017, with the headline 'ECB sticks with its stimulus measures'. Print Edition | Subscribe