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ECB to maintain monetary stimulus

Frankfurt — The European Central Bank has improved its economic outlook for the euro area, but said it could maintain aggressive monetary stimulus, suggest potential differences from the Fed and move towards a phasing out. That emergency measure Next week at the earliest.

At a press conference on Thursday, ECB Governor Christine Lagarde said she expects economic activity across the continent to recover strongly as the pace of Covid-19 vaccination accelerates and stores and restaurants reopen.

She warned that the region’s economic recovery is lagging behind the US recovery, but more than one in seven Europeans are still unemployed or quit their jobs.We Inflation soars to 5% On an annual basis in May, it has the highest annual inflation rate in almost 13 years, compared to just 2% in the euro area.

The US and Eurozone “start with completely different foundations, fiscal stimulus [programs] “The magnitudes are different,” Lagarde said, and inflationary pressures are “a completely different magnitude.”

The US economy may already be beyond its pre-pandemic scale, but the eurozone is not expected to make up for the ground lost in the pandemic until next year.

The ECB said in a statement that it would maintain key interest rates at minus 0.5% and continue to buy eurozone debt of € 1.85 trillion in an emergency. Bond purchase programThat’s $ 2.2 trillion until at least March 2022. Buy these bonds at a “significantly faster pace” than in the first few months of the year and repeat the March promise.

This move was widely anticipated and there were few ripples in the financial markets. Yields on 10-year debt in Italy fell from 0.776% on Wednesday to 0.750%, while yields on Greek equivalents fell from 0.833% to 0.808%.

Mr Lagarde said ECB officials had not yet discussed a reduction in bond purchases, and said such a consideration was premature. In contrast, the Federal Reserve Board has recently suggested that it is preparing to consider central bank stimulus at its June 15-16 policy meeting.

Differences between the ECB and the Fed should help hold the euro against the dollar and help European companies out of crisis.

“Other central banks are constrained by the Fed,” said Stefan Gerlach, a former vice president of the Irish central bank. “For example, if the ECB decides to tighten monetary policy before the Fed, the euro will soon rise against the dollar, which will hurt European exports.”

However, as the eurozone recovery accelerates, some analysts said the ECB could take too long to adjust its policy mix to better economic news.

“Even after the economy accelerates, the longer banks stay in the accelerator, the more difficult it can be for the ECB to design a smooth exit,” said Holger Schmeding, chief economist at Berenberg Bank. There is sex. “

The ECB said Thursday that the eurozone economy forecasts growth of 4% and 4.1% in March, respectively, compared to 4.6% this year and 4.7% next year. Inflation is expected to reach 1.9% this year and 1.5% next year, up from previous forecasts of 1.5% and 1.2%.

Analysts said the ECB needs to change course in the coming months and reveal plans to curtail bond purchases to prevent the economy from overheating. They said it could happen after a policy meeting in September or December.

Investors that sharp rises in commodity prices over the past year could lead to more sustained rises in inflation, which could push up market interest rates and cause major changes in global asset prices and capital flows. Is causing home concerns.

However, the ECB is likely to be wary of reducing stimulus before presenting the results of a long-standing review of monetary policy strategies that are expected to change banks’ inflation targets in the fall. The list said. For example, if the ECB raises its inflation target from less than 2% to 2% after review, additional stimulus is needed.

The ECB may also want to avoid signaling the next move until Federal Reserve Board Chair Jerome Powell discusses more clearly about reducing central bank asset purchases. Analysts say it could happen at the Jackson Hall Economic Symposium starting August 26th.

“It’s easier to follow than the ECB takes the lead,” said Marchelle Alexandrovich, an economist at Jeffreys in London.

Both Congress and the Federal Reserve are sending trillions of dollars into the economy to combat the economic damage caused by the coronavirus. The WSJ explains where the exciting money comes from. Photo Illustration: Carlos Waters / WSJ (Video from 5/28/20)

Write to Tom Fairless tom.fairless@wsj.com

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ECB to maintain monetary stimulus

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