Saturday September 22nd, 2018 3:31AM

European Central Bank officials cautious despite recovery

By The Associated Press

FRANKFURT, Germany (AP) — Top officials at the European Central Bank at their last meeting remained wary of prematurely signaling the next steps in an expected exit from their monetary stimulus polices.

Members of the 25-person governing council that sets monetary policy widely agreed on "the merits of a steady hand in communication" in order to keep investors from anticipating an eventual end to the stimulus and sending market interest rates higher in anticipation.

That's according to the written account of the meeting issued Thursday of the Dec. 14 meeting, when the council left benchmark interest rates and its stimulus program unchanged. The bank had said in October it would continue its bond-buying stimulus at a reduced rate of 30 billion euros ($36 billion) per month at least through September, but left the exact end date unclear.

The bank's council felt that "signals that could trigger an unwarranted tightening of financial conditions needed to be avoided." That was a reference to higher interest rates and diminished credit availability to businesses.

The bond-purchase stimulus, launched in 2015, is a way of pumping newly created money into the banking system, a step that should help push inflation higher toward the bank's goal of just under 2 percent. Currently, inflation is running at 1.4 percent in the 19 countries that use the euro currency. The ECB's stimulus effort also includes keeping its benchmark interest rate at a record low of zero.

The bank's policy has aimed at overcoming sluggish inflation and growth in the wake of the Great Recession and subsequent eurozone debt crisis that saw several members of the currency union need bailouts from the other members.

The stimulus has had wide-ranging effects for ordinary people — and so will its withdrawal. The purchases have driven down long-term interest rates, helping businesses and governments that need to borrow, but depriving savers of all but the most miserly returns on conservative holdings such as bank deposits. Draghi credits the stimulus with re-energizing the economy and helping create millions of new jobs as the eurozone's unemployment rate has fallen from above 12 percent to 8.7 percent.

Expansive monetary policy by central banks in major economies is also credited for the recent bouoyance in share prices that has sent major indexes to new highs.

The ECB is far behind the U.S. Federal Reserve in withdrawing crisis-era stimulus. The Fed has started raising interest benchmarks and letting some of its bond holdings run down as the bonds expire, a step that gradually withdraws some stimulus. The ECB has made clear that it will not raise interest rates until well after its bond purchases end. That means increases are not likely until sometime in 2019.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
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