‘ECB’s stimulus efforts still needed’

- Associated Press, FRANKFURT
The ECB has also kept its key interest rate benchmark at a record low of zero

Apr 7, 2017-European Central Bank head Mario Draghi insisted on Thursday that the bank’s stimulus efforts were still needed, while acknowledging that the risks to the economy across the 19-country eurozone appear to have diminished. “The recovery is progressing and now may be gaining momentum,” Draghi said in a speech. 

He added that the chances that the upswing would be unexpectedly derailed appear to have dwindled and that the balance of risks “seems to be shifting upward.” However, he cautioned that much of the improvement depended on the ECB’s monetary stimulus efforts and that it was “too soon to declare success.” 

Draghi’s stance on keeping stimulus in place contrasts with that of the U.S. Federal Reserve, which has already started withdrawing monetary stimulus by raising benchmark interest rates off their lows near zero. 

Minutes of the Fed’s last meeting, released on Wednesday, showed officials were considering reducing their large bond holdings sooner than expected, a step that could eventually mean higher market interest rates. The Fed can do that because the U.S. economic recovery is farther along and unemployment has fallen to lower levels than in Europe. 

The ECB has previously said it intends to continue pushing newly printed money into the eurozone economy through bond purchases at least through the end of the year. It has also kept its key interest rate benchmark at a record low of zero. 

A raft of recent economic data has stoked speculation that the ECB might start 

withdrawing its stimulus efforts earlier than planned. Surveys suggest that the 

eurozone may have grown as much as 0.6 percent in the first quarter from the 

previous three-month period, while official figures have shown inflation rising sharply from near zero to 1.5 percent in March, which is closer to the bank’s goal of just under 2 percent. 

Unemployment has also fallen but remains high at 9.5 percent, with sharp differences between member countries. Bringing an end to the stimulus efforts could have wide-ranging consequences for markets, companies and consumers. It would likely mean an end to unusually low borrowing costs for governments and financially solid companies. It would also remove support for bond prices and might mean higher returns for savers, who currently get very little, if anything at all, on 

conservative holdings such as bank deposits. 

Draghi indicated the central bank was not considering an earlier exit and that “a reassessment of the current monetary policy stance is not warranted at this stage.” Draghi warned that recent gains in growth had come to a great extent from cheaper oil and from the ECB’s own efforts. He said the bank needed to see that inflation would remain stronger even after the stimulus started to be withdrawn.

Published: 07-04-2017 08:19

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