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E.C.B. Expected to Announce Details of Bond-Buying Program at Cyprus Meeting E.C.B. Expected to Detail Bond-Buying Program at Cyprus Meeting
(about 1 hour later)
NICOSIA, Cyprus — The European Central Bank was expected on Thursday to reveal details of a large-scale asset purchase program that it unveiled last month, its latest and biggest weapon for combating the drop in consumer prices and reviving the stagnant eurozone economy.NICOSIA, Cyprus — The European Central Bank was expected on Thursday to reveal details of a large-scale asset purchase program that it unveiled last month, its latest and biggest weapon for combating the drop in consumer prices and reviving the stagnant eurozone economy.
The central bank, meeting in the capital city of Cyprus, the easternmost member of the eurozone, was also expected to leave unchanged its benchmark interest rate at 0.05 percent. With inflation in negative territory, analysts and investors expect the central bank to keep the main rate at close to zero indefinitely. The central bank, meeting here in the capital city of Cyprus, the easternmost member of the eurozone, was also expected to leave unchanged its benchmark interest rate at 0.05 percent. With inflation in negative territory, analysts and investors expect the central bank to keep the main rate at close to zero indefinitely.
The monetary policy meeting is the first since the central bank said on Jan. 22 that it would begin buying eurozone government bonds and other debt at a monthly rate of 60 billion euros, or about $67 billion, in an attempt to push inflation back toward the official target of below, but close to, 2 percent.The monetary policy meeting is the first since the central bank said on Jan. 22 that it would begin buying eurozone government bonds and other debt at a monthly rate of 60 billion euros, or about $67 billion, in an attempt to push inflation back toward the official target of below, but close to, 2 percent.
The buying of government bonds is supposed to begin this month, and Mario Draghi, the president of the European Central Bank, was expected to give more details on Thursday about how it and the national central banks would carry out the huge market intervention.The buying of government bonds is supposed to begin this month, and Mario Draghi, the president of the European Central Bank, was expected to give more details on Thursday about how it and the national central banks would carry out the huge market intervention.
Analysts have questioned whether the European Central Bank would be able to find enough debt to meet its goals. Demand for government bonds issued by Germany, Finland and some other countries is so strong that the bonds have negative interest rates. In effect, investors are willing to pay some debtors to keep their money safe. Analysts have questioned whether the European Central Bank would be able to find enough debt to meet its goals. Demand for government bonds issued by Finland, Germany and some other countries is so strong that the bonds have negative interest rates. In effect, investors are willing to pay some debtors to keep their money safe.
Bond buying is a way for the European Central Bank to effectively print money and inject it into the economy. But confidence in the central bank’s ability to rekindle inflation could suffer if the market is so tight that it is unable to meet its goal of buying €60 billion of debt a month.Bond buying is a way for the European Central Bank to effectively print money and inject it into the economy. But confidence in the central bank’s ability to rekindle inflation could suffer if the market is so tight that it is unable to meet its goal of buying €60 billion of debt a month.
“The E.C.B. is unlikely to find it very easy to accumulate such a large volume of paper,” analysts at Barclays said in a note to investors.“The E.C.B. is unlikely to find it very easy to accumulate such a large volume of paper,” analysts at Barclays said in a note to investors.
Still, the policy might already have had a beneficial effect. Market interest rates have been falling in anticipation of the bond-buying campaign. That is making it possible for companies to borrow money more cheaply than ever. What companies save on interest payments they can invest in expansion and hiring.Still, the policy might already have had a beneficial effect. Market interest rates have been falling in anticipation of the bond-buying campaign. That is making it possible for companies to borrow money more cheaply than ever. What companies save on interest payments they can invest in expansion and hiring.
“We are investing a lot right now,” Hakan Samuelsson, the chief executive of Volvo Car Group, said in an interview at the Geneva International Motor Show on Tuesday. “It’s an advantage that we have low interest rates.”“We are investing a lot right now,” Hakan Samuelsson, the chief executive of Volvo Car Group, said in an interview at the Geneva International Motor Show on Tuesday. “It’s an advantage that we have low interest rates.”
Sweden, where Volvo is based, is not a member of the eurozone, but it closely tracks its monetary policy with that of the currency bloc, and the central bank’s benchmark rate is below zero. Volvo’s decision to renew its model line and rebuild market share in the United States was not prompted by low interest rates, Mr. Samuelsson said. Sweden, where Volvo is based, is not a member of the eurozone, but it closely tracks its monetary policy with that of the currency bloc, and the Swedish benchmark rate is below zero. Volvo’s decision to renew its model line and rebuild market share in the United States was not prompted by low interest rates, Mr. Samuelsson said.
“But,” he added, “it’s good timing for us.”“But,” he added, “it’s good timing for us.”
Stock indexes in Germany and other countries hit record highs this week, in part because investors expected cheaper borrowing costs to have a positive effect on corporate profits.Stock indexes in Germany and other countries hit record highs this week, in part because investors expected cheaper borrowing costs to have a positive effect on corporate profits.
Economists at the European Central Bank are also scheduled to present new forecasts on Thursday. Analysts at Nomura said they expected the forecast for economic growth in 2015 in the eurozone to be revised upward, to 1.3 percent from 1 percent, and to 1.7 percent from 1.5 percent for 2016. There have been some indications that the eurozone economy is improving, in part because of lower fuel prices and the effects of cheap borrowing rates.Economists at the European Central Bank are also scheduled to present new forecasts on Thursday. Analysts at Nomura said they expected the forecast for economic growth in 2015 in the eurozone to be revised upward, to 1.3 percent from 1 percent, and to 1.7 percent from 1.5 percent for 2016. There have been some indications that the eurozone economy is improving, in part because of lower fuel prices and the effects of cheap borrowing rates.
But growing fears of spiraling consumer prices prompted the European Central Bank to act. Consumer prices dropped 0.3 percent in February from a year earlier, the third consecutive month of falling prices, according to an official estimate. Declining prices can put downward pressure on wages, undercut corporate revenue and impede growth at a time when the eurozone is still struggling to cut the unemployment rate, which was at 11.2 percent in January.But growing fears of spiraling consumer prices prompted the European Central Bank to act. Consumer prices dropped 0.3 percent in February from a year earlier, the third consecutive month of falling prices, according to an official estimate. Declining prices can put downward pressure on wages, undercut corporate revenue and impede growth at a time when the eurozone is still struggling to cut the unemployment rate, which was at 11.2 percent in January.
The European Central Bank, which is based in Frankfurt, meets twice a year in a different city. The choice of Cyprus is noteworthy because the country continues to suffer from the effects of the collapse of its banks in 2013, and from a rescue plan that forced depositors to shoulder some of its cost.The European Central Bank, which is based in Frankfurt, meets twice a year in a different city. The choice of Cyprus is noteworthy because the country continues to suffer from the effects of the collapse of its banks in 2013, and from a rescue plan that forced depositors to shoulder some of its cost.
Many Cypriots are bitter toward the European Central Bank, which they accuse of making the country’s problems worse by continuing to keep the banks on life support long after it was clear that they were insolvent. The delay raised the cost of the bank collapse and exaggerated the economic pain in Cyprus, critics say. Unemployment is 16.1 percent, and residents still face restrictions on transferring money out of the country. Many Cypriots are bitter toward the European Central Bank, which they accuse of making the country’s problems worse by continuing to keep the banks on life support long after it was clear that they were insolvent. The delay raised the cost of the bank collapse and exacerbated the economic pain in Cyprus, critics say. Unemployment is 16.1 percent, and residents still face restrictions on transferring money out of the country.
Some residents of Cyprus expressed their dissatisfaction with the central bank’s behavior by staging demonstrations on Wednesday and Thursday outside the conference center where Mr. Draghi was scheduled to hold a news conference after the rate decision.Some residents of Cyprus expressed their dissatisfaction with the central bank’s behavior by staging demonstrations on Wednesday and Thursday outside the conference center where Mr. Draghi was scheduled to hold a news conference after the rate decision.