22.Apr .2021 17:30

ECB leaves interest rates, pandemic stimulus unchanged

ECB leaves interest rates, pandemic stimulus unchanged
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The European Central Bank left its key stimulus programs unchanged with almost 900 billion euros of support still in the pipeline as the economy lags the U.S. and China in a drawn-out struggle with the COVID-19 pandemic.
 
The central bank for the 19 European Union member countries that use the euro left interest rates unchanged at record lows and made no adjustments to its 1.85 trillion euro bond purchase stimulus it says will run at least through March, 2022. Just under half of that amount remains to be used in coming months. The regular purchases using newly created money — a key power of central banks — drive down longer-term borrowing costs for companies, consumers and governments.
 
At the last meeting on March 11, ECB President Christine Lagarde said the bank would step up the pace of those purchases during coming months, answering concerns that some bond-market interest rates were creeping up.
 
On Thursday, Lagarde is expected to verbally underline that the economy still needs plenty of support as ongoing lockdowns and a lagging vaccination campaign push back the recovery.
 
She will likely reiterate the message sent by top bank officials in recent weeks that the bank is nowhere near withdrawing any of its extraordinary measures, even if inflation jumps later this year. Inflation is expected to temporarily climb above 2% annually in the later part of the year.
 
The bank says that will be the result of temporary factors such as the withdrawal of pandemic tax breaks and comparisons with an earlier period of very low oil prices — and not a reason to withdraw any of its efforts to keep credit cheap for companies, governments and consumers. Inflation in the eurozone was an annual 1.3% in March. The bank’s goal is close to but below 2%.
 
U.S. Federal Reserve Chair Jerome Powell has taken a similar view, saying that price increases later this could be due to temporary factors and that the Fed would not begin raising rates until the recovery in jobs in hiring was “effectively complete” and that inflation appears “on track to run moderately above 2% for some time.”
 
The eurozone economy shrank by 6.6% last year and economists say it may have contracted in the first quarter of this year as well. Output is not expected to reach pre-pandemic levels until mid-2022, lagging well behind other major pillars of the global economy. The U.S. could reach pre-pandemic output as early as this month, according to an April 14 forecast from the Conference Board, while China was the only major economy to grow for the year in 2020. The U.S. rebound is being propelled by massive relief and stimulus spending by the federal government. European governments have also spent heavily on pandemic relief but their 750-billion euro recovery fund at the EU level will only starting paying out for digital and green projects this year.
 
One ECB board member, Klaas Knot from the Netherlands, has suggested the ECB could start scaling back the pandemic bond purchases later this year in time to phase them out in March 2022. For now that position appears to be in the minority but could signal friction between stimulus advocates and skeptics when it the scheduled end of the bond purchase stimulus draws nearer.
 
Source: AP News