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E.C.B. Expected to Keep Status Quo as Inflation Shows Signs of Rising E.C.B. Keeps Rates Steady as Inflation Shows Signs of Rising
(about 5 hours later)
The European Central Bank is not expected to make any changes to monetary policy when it meets Thursday. In fact, with the region trapped in a period of economic stasis, it may not do much of anything for many months to come. Frankfurt — The European Central Bank left interest rates unchanged on Thursday, part of what analysts say will probably be an extended phase of relative inaction amid a tepid economy.
Growth in the eurozone is neither so terrible that it requires a new burst of stimulus from the bank, nor so torrid that there is a need to apply the brakes, analysts say. The European Central Bank’s Governing Council is expected to pause for a while after several years in which it pushed the boundaries of monetary policy. Growth in the eurozone is neither so terrible that it requires a new burst of stimulus from the bank, nor so torrid that there is a need to apply the brakes, analysts say. The European Central Bank’s Governing Council is now expected to pause for a while after several years in which it pushed the boundaries of monetary policy.
Mario Draghi, the president of the bank, will hold a news conference in Vienna at 2:30 p.m. local time and will probably stress that he and other members of the council remain in a state of high alert, ready to swing into action to prevent inflation from falling to levels considered dangerously low. The bank left its benchmark interest rate at zero, where it has been since March.
It has already made aggressive moves in recent months by buying government debt in mass quantities and cutting interest rates to the lowest levels ever. This month, it will expand those measures still further by buying corporate bonds and by effectively paying banks to lend to businesses, all in a bid to spur the economy. Mario Draghi, the president of the bank, was to hold a news conference in Vienna on Thursday afternoon and was expected to stress that he and other members of the council remained in a state of high alert, ready to swing into action to prevent inflation from falling to levels considered dangerously low.
But analysts would be surprised, indeed shocked, if the bank took action Thursday following a monetary policy meeting in Vienna, one of the Governing Council’s periodic forays outside its base in Frankfurt. The bank has already made aggressive moves in recent months by buying government debt in large quantities and cutting interest rates to their lowest levels. This month, the bank will expand those measures by buying corporate bonds and by effectively paying banks to lend to businesses, all in a bid to spur Europe’s economy.
“Inflation and growth are going in the right direction, and speak against further loosening of monetary policy,” Claudia Broyer, an economist at the German insurer Allianz, said in a note this week. “But neither are so dynamic that the E.C.B. would consider tightening.” Analysts would have been surprised, indeed shocked, if the bank had taken action on Thursday following a monetary policy meeting in Vienna, one of the Governing Council’s periodic forays outside its base in Frankfurt.
Inflation in the eurozone was minus 0.1 percent in May, according to an official estimate Tuesday, still far from the bank’s official target of 2 percent. But a 1 percent increase in the price of services in May, as well as a turnaround in oil prices that has pushed them near $50 a barrel from around half that in January, signal that overall inflation could rise in months to come. “Inflation and growth are going in the right direction, and speak against further loosening of monetary policy,” Claudia Broyer, an economist at the German insurer Allianz, wrote in a note this week. “But neither are so dynamic that the E.C.B. would consider tightening.”
The bank’s in-house economists are scheduled to present new inflation forecasts Thursday and could revise them upward based on the latest data, analysts said. Since early last year, any revisions have been in the other direction. The European Central Bank’s charter defines its main job as keeping inflation below 2 percent, but not too far below it. Inflation in the eurozone was minus 0.1 percent in May, according to an official estimate on Tuesday, still far from the bank’s official target of 2 percent. But a 1 percent increase in the price of services in May, as well as a turnaround in oil prices that has pushed them near $50 a barrel from around half that in January, signal that overall inflation could rise in months to come.
“The recent increase in oil prices has given rise to speculation about a turning point” in inflation, Carsten Brzeski, an economist at ING Bank, said in a note this week. The bank’s in-house economists were scheduled to present new inflation forecasts on Thursday and could revise them upward based on the latest data, analysts said. Since early last year, any revisions have been in the other direction. The European Central Bank’s charter defines its main job as keeping inflation below 2 percent, but not too far below it.
“The recent increase in oil prices has given rise to speculation about a turning point” in inflation, Carsten Brzeski, an economist at ING Bank, wrote in a note this week.
Signs of higher inflation would reassure the Governing Council that its existing policies are working and do not need to be tweaked.Signs of higher inflation would reassure the Governing Council that its existing policies are working and do not need to be tweaked.
Another reason the central bank is not expected to announce new stimulus Thursday is that previous measures are just going into effect. In March, it said it would begin buying corporate bonds in an expansion of its so-called quantitative easing program, a way of pumping money into the economy. Those purchases are scheduled to begin this month. Another reason the central bank had not been expected to announce new stimulus on Thursday is that its previous measures are just going into effect. In March, it said it would begin buying corporate bonds in an expansion of its so-called quantitative easing program, a way of pumping money into the economy. Those purchases are scheduled to begin this month.
In addition, the central bank will this month begin a program intended to address a shortage of credit in countries like Italy. Under some circumstances the European Central Bank will pay commercial banks to take its money, which the banks must lend to customers.In addition, the central bank will this month begin a program intended to address a shortage of credit in countries like Italy. Under some circumstances the European Central Bank will pay commercial banks to take its money, which the banks must lend to customers.
Mr. Draghi will provide further details about the moves during his news conference, the bank said in a statement.
The central bank will want to take some time to see how those programs are working, analysts said.The central bank will want to take some time to see how those programs are working, analysts said.
The eurozone economy is recovering, but slowly and unevenly. During the first quarter, the total value of goods and services produced in the eurozone surpassed the previous peak reached in early 2008, before the region was struck by financial and debt crises.The eurozone economy is recovering, but slowly and unevenly. During the first quarter, the total value of goods and services produced in the eurozone surpassed the previous peak reached in early 2008, before the region was struck by financial and debt crises.
But unemployment remains above 10 percent and is falling only gradually, and eurozone growth is not so brisk that economists see any need for the bank to think about removing stimulus to prevent overheating. That is in contrast to the Federal Reserve, which is expected to raise interest rates in the United States as early as its next meeting, on June 14 and 15. But unemployment remains above 10 percent and is falling only gradually, and eurozone growth is not so brisk that economists see any need for the bank to think about removing stimulus to prevent overheating. That is in contrast to the Federal Reserve, which is expected to raise interest rates in the United States as early as its next meeting, June 14-15.
“Any kind of tapering speculations are premature,” Mr. Brzeski said.“Any kind of tapering speculations are premature,” Mr. Brzeski said.
To be sure, along with questions about the direction of the economy, there is potential for a new crisis that would force the European Central Bank to mobilize. Along with questions about the direction of the economy, there is potential for a new crisis that would push the European Central Bank to mobilize.
Britain will hold a referendum on June 23 about whether to remain a member of the European Union. A vote to quit the union would raise concerns that other members would leave, perhaps causing the bloc to fall apart. The uncertainty would have an economic effect, making businesses cautious about hiring and investing.Britain will hold a referendum on June 23 about whether to remain a member of the European Union. A vote to quit the union would raise concerns that other members would leave, perhaps causing the bloc to fall apart. The uncertainty would have an economic effect, making businesses cautious about hiring and investing.
In such a situation, the central bank would be under pressure to intervene once again.In such a situation, the central bank would be under pressure to intervene once again.