FRANKFURT, Germany (AP) — The European Central Bank has left its stimulus program unchanged as it waits for the continent’s political situation to settle down and held off Thursday from signaling any retreat from its efforts to support the strengthening economy.
The stand-pat decision comes days ahead of the second round of France’s presidential election, in which anti-euro candidate Marine Le Pen is battling pro-EU front-runner Emmanuel Macron. A Le Pen victory on May 7 could unsettle financial markets since she has advocated taking France out of the shared, 19-country currency.
The statement from the central bank’s 25-member governing council on Thursday gave no fodder for additional market speculation that would ruffle financial markets, which already have enough on their minds with the French election. The statement omitted any hint of when the bank might taper off its extraordinary support measures.
The statement repeated past wording that indicates the central bank even “stands ready to increase” stimulus if the outlook for growth and inflation worsens. Analysts consider that wording a way of discouraging investors from speculating about the end of the stimulus — which might prematurely drive up market interest rates, blunting its intended benefits.
Markets are waiting to see whether ECB President Mario Draghi drops any more hints at his post-meeting news conference. Betting is that he may acknowledge that the economy is improving but stay away from clear hints about when the stimulus will end.
The 60 billion euros ($65 billion) per month in bond purchases push newly printed money into the economy in an effort to boost inflation, which is considered too weak at 1.5 percent annually. The ECB has trimmed the purchases, which started in March, 2015, from 80 billion euros a month as of April. But it insists they will continue at least until the end of the year, and in any case until inflation shows signs of turning convincingly upward toward the bank’s goal of just under 2 percent. Draghi has said they won’t be suddenly shut off after that but instead gradually reduced, but has not said when that taper will start.
Printing money and adding it to the economy can raise inflation, lower interest rates and make it easier for businesses to get the credit they need. It is considered an extraordinary step undertaken to keep Europe from falling into a chronic spiral of falling prices after the shock of the debt crisis that started in 2009 with financial trouble in Greece.
The economy has improved markedly in recent months, with surveys showing the best growth in years. Economic output rose 0.4 percent in the fourth quarter is expected to improve this year, though inflation remains subdued and unemployment elevated at 9.5 percent.
The economic improvement has led some critics of the stimulus program to push for it to be withdrawn.
Several analysts think the central bank will change the wording of its statement in its June or July meetings to signal that the economy is less in need of help. That could lead to an announcement in September on the timing of the taper to the stimulus.
Key wording currently includes the bank’s statement that economic risks are “tilted to the downside,” meaning it’s more likely the economy and inflation will grow less than expected rather than more than expected. Another key statement is the promise to increase the stimulus if things worsen.
Other stimulus measures include keeping the bank’s interest rate benchmark at a record low of zero. That rate largely steers short-term rates and keeping it that low makes it cheaper for banks to borrow money on the interbank market, which in turn would mean in lower borrowing costs for businesses. The ECB has also imposed a minus 0.4 percent interest rate on deposits it takes from commercial banks. That is in essence a tax aimed at pushing banks to lend the money rather than leave it at the ECB’s super-safe overnight deposit facility.
