ECB to hint at end to easy money — Analysts
FRANKFURT AM MAIN: Expectations are high that the European Central Bank will hint that it is heading for the exit from its easy-money policy when governors meet in Estonian capital Tallinn on Thursday.
Most analysts predict the bank’s 60-billion- euro ( US$ 67.4 billion) monthly bond purchases will continue and interest rates will remain at historic lows.
But they believe policymakers will begin laying the groundwork for an announcement later this year about plans to wind down bond-buying, by offering a sunnier economic outlook for the 19-nation eurozone.
“The ECB governing council needs to take no major policy decision beyond tweaking its guidance a little to keep up with the eurozone’s broad-based and resilient economic recovery,” said economist Holger Schmieding of Berenberg bank.
Bond-buying and low interest rates were introduced at a time when the ECB feared the threat of deflation – or steadily decreasing
The ECB governing council needs to take no major policy decision beyond tweaking its guidance a little to keep up with the eurozone’s broad-based and resilient economic recovery. Holger Schmieding, economist
prices the undermine economic activity.
By pumping cash through the financial system and into the real economy, the bank believes it has stimulated growth and pushed inflation back towards its target of just below 2.0 per cent.
Inflation has been on a rollercoaster ride in recent months, hitting the 2.0 per cent target in February before falling back again in March.
The same pattern was repeated with a spike in April, to 1.9 per cent, before a retreat in May.
Volatile food and energy prices are to blame for such rapid changes, policymakers say, while ‘core’, or underlying inflation discounting those elements remains sluggish.
ECB president Mario Draghi argues that wages – which he dubs the ‘linchpin’ of price growth – are not rising fast enough to drive inflation, even as the eurozone economy enjoys healthy expansion.
“Deflationary risks might have disappeared, but the ECB is still far away from reaching its inflation objective,” said economist Carsten Brzeski of ING Diba bank.
Nevertheless, “the ECB would be blind not to acknowledge the cyclical upswing in the eurozone” in its press conference Thursday, he added.
In its carefully-weighed policy statements, the central bank has long warned of risks threatening the eurozone recovery. — AFP