Euro stimulus to keep flowing

THE European Central Bank will fend off calls to wind down its massive monetary stimulus when governors meet tomorrow, preferring to wait for calmer political waters and fresh economic data, analysts predict.

Faced with continuing political uncertainty and weak inflation, policymakers are unlikely to turn off the taps on mass bond-buying or raise interest rates from historic lows, fearing that doing so would risk nipping the eurozone economic recovery in the bud.

The bank’s interventions in the economy are designed to power growth and push inflation towards its target of just below 2.0 per cent.

But while price growth in the 19-nation single currency area briefly overshot the goal in February, it fell back to 1.5 per cent in March.

ECB president Mario Draghi on Friday reiterated his conviction that “very substantial” support from the central bank is still needed to bring core, or underlying inflation back towards the target.

“Underlying inflation ... is expected to rise only gradually over the medium term,” he told the International Monetary and Financial Committee in Washington.

The ECB chief has labelled higher wages the “linchpin” of increased inflation, but high unemployment in some member countries means employers still don’t need to offer pay rises, as workers bargain from a weak position.