European Central Bank keeps its powder dry
THE European Central Bank made a small step toward phasing out its extraordinary support for the economy yesterday – but left its stimulus programmes and record low interest rates unchanged despite a spreading recovery in the 19 countries that use the euro currency.
In its statement announcing its policy decision, the central bank dropped wording that it could lower interest rates further, a sign of greater confidence in the economy, which is growing at a two-year high.
The bank did not otherwise change its views in its statement, and all eyes will turn to the news conference by its president, Mario Draghi, for further hints about future policy moves.
The central bank’s announcement kept important wording that its bond-buying stimulus programme could be stepped up if the economic outlook worsens. While few expect that to happen, the words underline that the bank is not yet willing to call time on the stimulus programme.
Analysts expect that provision to be dropped as early as next month as the central bank edges toward announcing how it will phase out the bond purchases next year. The bank is moving gingerly out of concern that investors could anticipate an end to the stimulus by sending market interest rates higher, tightening financing for companies and prematurely blunting the stimulus effect even before it ends.
Members of the ECB’s governing council expressed concern at the last meeting that “even small and incremental changes in communication could have strong signalling effects and urged adjustments in a gradual and cautious manner.”
Ending the bond purchases and raising interest rates could have wide-ranging effects, such as a stronger euro and higher interest costs for heavily indebted governments. – AP