Euro­pean Cen­tral Bank con­fi­dent in plan to re­move stim­u­lus

Daily Sabah (Turkey) - - Money -

TOP Euro­pean Cen­tral Bank of­fi­cials ex­pressed con­fi­dence at their last meet­ing that in­fla­tion is trend­ing to­ward lev­els con­sis­tent with a strong econ­omy - more con­fir­ma­tion that their 2.5 tril­lion-euro ($2.9 tril­lion) stim­u­lus pro­gram will cease at year end.

The writ­ten ac­count re­leased yes­ter­day of the Sept. 13 meet­ing showed that the strength of Europe’s eco­nomic up­swing and ac­com­pa­ny­ing wage in­creases for work­ers “con­tin­ued to sup­port con­fi­dence in the sus­tained con­ver­gence of in­fla­tion” to­ward the bank’s goal of just un­der 2 per­cent an­nu­ally.

The com­ments con­firm the bank is on the way to end­ing the stim­u­lus at year end, al­though it has made clear that in­ter­est rates will not be in­creased be­fore well into 2019. The ECB is grad­u­ally join­ing the U.S. Fed­eral Re­serve in with­draw­ing ex­tra­or­di­nary stim­u­lus mea­sures used to sup­port the global econ­omy in the years fol­low­ing the Great Re­ces­sion. The Fed has al­ready ended its pur­chases and started rais­ing in­ter­est rates.

A rise in in­ter­est rates is among the big con­cerns of in­vestors who have been push­ing down stock mar­kets this week, as it could make loans more ex­pen­sive and dent growth.

In­fla­tion was 2.1 per­cent in Septem­ber in the 19 coun­tries that use the euro. The ECB of­fi­cials were in­creas­ingly con­fi­dent in­fla­tion will stay in line with its goal even af­ter the monthly bond pur­chases to pump newly cre­ated money into the econ­omy come to a sched­uled end in De­cem­ber.

The bank of­fi­cials cau­tioned that dis­rup­tions in global trade re­main a poten- tial weak­ness for the global econ­omy. But they said that “ad­verse con­fi­dence ef­fects on trade and in­vest­ment aris­ing from trade ten­sions had hith­erto been limited,” ac­cord­ing to the writ­ten ac­count.

U.S. Pres­i­dent Don­ald Trump has im­posed new tar­iffs, or im­port taxes, on Chi­nese goods and the Chi­nese have re­tal­i­ated with tar­iffs of their own, rais­ing fears that in­creas­ing pro­tec­tion­ism will hold back global growth.

The ac­count sum­ma­rizes the dis­cus­sions among of­fi­cials re­spon­si­ble for set­ting mone­tary pol­icy in the euro­zone but omits names and any votes taken.

The mem­bers of the bank’s gov­ern­ing coun­cil con­firmed at the meet­ing an early timetable un­der which the pur­chases were re­duced to 15 bil­lion eu­ros a month from 30 bil­lion eu­ros from Oc­to­ber. The pur­chases are a way of in­ject­ing newly cre­ated money into the fi­nan­cial sys­tem with the aim of in­creas­ing in­fla­tion and mak­ing more credit avail­able to busi­nesses. In­fla­tion had fallen to wor­ri­some lev­els near or be­low zero in the wake of the Great Re­ces­sion and the euro­zone’s woes over high bank and gov­ern­ment debt in some coun­tries.

The ECB’s key in­ter­est rates re­main at record lows of zero for lend­ing to banks and mi­nus 0.4 per­cent on de­posits it takes from com­mer­cial banks.

The with­drawal of stim­u­lus by cen­tral banks in the rich world could have widerang­ing ef­fects on mar­kets, as ris­ing in­ter­est rates on safer in­vest­ments such as bonds and bank de­posits in­creases their at­trac­tive­ness rel­a­tive to stocks and other riskier as­sets.

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