Sat | Aug 19, 2017

ECB: Stimulus slowly helping economy

Published:Friday | June 3, 2016 | 6:00 AM

The European Central Bank (ECB) 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.

After the bank left its key interest rates unchanged at its meeting Thursday, President Mario Draghi repeated his calls for national governments to act to boost growth and not rely on the central bank so much. He has called for governments to cut red tape that hinders hiring and starting a business, and to spend more on investments.

Draghi told a news conference, following Thursday's meeting of its 25-member governing council in Vienna, that existing stimulus measures will continue to feed through to the economy, helping it.

"We have to see the full impact of the measures we decided in March. We have to focus on implementation," he said.

The ECB nudged up its inflation outlook for 2016 to 0.2 per cent from 0.1 per cent previously. It also raised its economic growth prediction to 1.6 per cent from 1.4 per cent. The inflation remains far below the ECB's target of just under two per cent, suggesting the economy is still far from healthy.

At Thursday's meeting, the ECB refrained from announcing more measures and decided to leave at zero its refinancing rate. 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 rate cuts, the bank is buying €80 billion (US$89 billion) in bonds each month with newly printed money in an effort to raise inflation, which, at minus 0.1 per cent annually, is a sign of weak demand and far below the bank's goal of just under two per cent.

The monthly purchases, to be conducted at least through March 2017, will pump €1.74 trillion (US$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.

The ECB this year decided to expand the bond-buying programme, which has so far purchased mainly government debt, to also include corporate bonds. On Thursday, it decided on a start date of June 8 for the purchases of non-bank corporate bonds.

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 each month in interest on their mortgages.

The Eurozone economy grew by a decent quarterly rate of 0.5 per cent in the first quarter, but unemployment remains high at 10.2 per cent and is coming down only slowly.

To see a more significant improvement in the economy, Draghi called on governments to take action.

"The focus should be on actions to raise productivity and improve the business environment," he said.

- AP