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July 21, 2017

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ECB holds steady easy monetary stance

THE European Central Bank left its ultra easy monetary policy stance unchanged as expected yesterday, keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.

After ECB chief Mario Draghi raised the prospect of policy tightening last month, he signaled that any policy tweaks would come only gradually, setting the scene for a possible discussion in September about a long-awaited tapering of its asset buys.

“We need to be persistent and patient because we aren’t there yet, and prudent,” Draghi told his regular news conference after a meeting of ECB policy-makers in Frankfurt.

He stressed the bank’s governing council was unanimous both on the decision to keep its guidance unchanged and to avoid setting a precise date for a discussion of future policy, noting only that it would occur in the autumn.

With the eurozone economy now growing for the 17th straight quarter, its best run since before the 2007-08 global financial crisis, that at least suggested the ECB is starting to contemplate easing off the accelerator, preserving some firepower after printing nearly 2 trillion euros (US$2.3 trillion) to jump start growth.

The prospect of reduced monetary stimulus has kept financial markets edgy, with investors sifting through clues to gauge how big central banks around the globe will unwind unconventional policy that have kept borrowing costs at rock bottom.

The euro and government bond yields across the bloc initially slipped after the statement. But as Draghi spoke, the euro edged back above US$1.15 and eurozone bond yields gained, ostensibly on his confirmation of hopes that the taper would be discussed in autumn.

The ECB earlier kept its deposit rate deep in negative territory and kept monthly bond purchases at 60 billion euros, in line with the expectation of most analysts in a Reuters poll.

“If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress toward a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program by size and/or duration,” it said.


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