European Central Bank: stimulus is working, give it time

VIENNA – The European Central Bank says its stimulus measures are helping the economy of the 19 countries that use the euro — and need time to work before any new monetary jolts are added.

The bank left its stimulus programs unchanged at its policy meeting Thursday, with President Mario Draghi stressing that the focus now is on implementing measures agreed on earlier this year. Those measures will provide new stimulus to the economy as their effects take hold, he told a news conference.

The bank is broadening its bond-buying stimulus program by starting purchases of corporate debt on June 8 and will start giving new ultra-cheap loans to banks on June 22. The ECB decided both in March but announced the start dates Thursday.

“We have to see the full impact of the measures we decided in March. We have to focus on implementation,” he said after the meeting of the ECB’s 25-member governing council.

The eurozone economy had a good start to the year but is struggling to maintain momentum. Also, inflation at minus 0.1 per cent is far below the target of just under 2 per cent. And unemployment is still high at 10.2 per cent.

Draghi said that the ECB would not hesitate to provide more support to the economy, if needed, and its updated forecasts suggested it might have to.

The ECB nudged up its inflation outlook for this year only slightly, to 0.2 per cent from 0.1 per cent previously. It left the predictions for 2017 and 2018 unchanged at 1.3 and 1.6 per cent, still well below the target and suggesting the economy is far from healthy.

The recent slew of stimulus measures decided in December and March, on top of a recent modest improvement in some economic indicators, have taken some of the pressure off the ECB to do more, if only for the moment. In particular, higher oil prices offer the prospect of slightly higher inflation.

“Higher oil prices, improved eurozone GDP growth in the first quarter and strengthening business and consumer confidence in May have given the ECB welcome breathing space,” economist Howard Archer at IHS Global Insight wrote in an email.

At Thursday’s meeting, the ECB left its main benchmark refinancing rate at zero per cent, a record low. That rate determines what the central bank charges for loans to commercial banks and influences other short-term market interest rates.

It also left at minus 0.4 per cent the rate it charges on overnight deposits that commercial banks leave with it. That measure is aimed at pushing banks to take the risks of lending the money rather than hoard it.

On top of low rates, the bank is buying 80 billion euros ($89 billion) in bonds each month with newly printed money in an effort to raise inflation.

The monthly purchases, to be conducted at least through March 2017, will pump 1.74 trillion euros ($1.94 trillion) that didn’t exist before into the banking system in hopes that all that money finds productive use as credit to businesses and consumers. The bank doesn’t use a printing press to create money, but simply credits the commercial banks’ reserve accounts at the ECB with new euros — something it is entitled to do as the legal issuer of the euro currency.

Central bank policies have wide-ranging impact on people’s lives, determining everything from what people earn on their savings — not much these days — to what they pay in interest on their mortgages.

Draghi took a moment to feel savers’ pain, noting that low rates are a symptom of weak growth and would rise when the economy picks up. “For interest rates to be higher tomorrow, they have to be lower today,” he said.

Draghi repeated his calls for national governments to act to boost growth and not rely on the central bank so much. He said each government had to decide for itself what to do, but the ECB has noted it is important to reduce red tape that hinders hiring and firing and bureaucratic delays in starting a business.

“With a faster pace of structural reforms, our measures would be showing their results faster,” he said.

The meeting was held in Vienna at the Austrian national central bank, in according with the ECB’s custom of holding occasional meetings away from its headquarters in Frankfurt, Germany, to underline its role as a pan-European institution.