FRANKFURT: The European Central Bank will fend off calls to wind down its massive monetary stimulus when governors meet on Thursday, 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 euro zone 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 — excluding volatile food and energy prices — 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. Draghi and his supporters on the governing council see slack remaining in the economy.
The ECB chief in March labelled higher wages the “lynchpin” 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.
Meanwhile, policymakers are anxious not to upset financial markets while euro zone heavyweight France navigates a high-stakes presidential election, which far-right anti-euro candidate Marine Le Pen has a real chance of winning after reaching the run-off.
“The meeting comes at a time at which the ECB would rather say nothing than give markets any new information to speculate about,” said economist Carsten Brzeski of ING Diba bank.— AFP
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