ECB to Keep Stimulus Running 04/22 06:10
FRANKFURT, Germany (AP) -- The European Central Bank is expected to signal
Thursday that even if inflation rises later this year it won't consider cutting
back support for Europe's economy, which is lagging the U.S. and China amid a
drawn-out struggle with the COVID-19 pandemic.
Extended lockdowns amid a resurgence of the virus, coupled with slow
vaccination rollouts, have pushed back hopes for what should eventually be a
The central bank for the 19 European Union countries that use the euro still
has almost 900 billion euros left in its pandemic bond purchase program, set to
run through March 2022. So analysts don't expect an announcement of more
support when the bank's 25-member governing council holds its regular policy
Instead, bank President Christine Lagarde will likely reiterate that the
bank is nowhere near withdrawing any of its extraordinary measures, even if
inflation jumps later this year. Consumer inflation is expected to temporarily
climb above 2% annually in the later part of the year.
But the bank says that will be the result of transitory 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 year could be due to temporary factors and that
the Fed would not begin raising rates until a recovery of jobs lost in the
pandemic 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 such as the US and China.
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 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 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
the scheduled end of the bond purchase stimulus draws nearer. The purchases are
a way of pumping newly created money into the economy, a step which helps keep
borrowing costs low.