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March 10, 2017

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ECB: stimulus policy stays till end 2017

THE European Central Bank pledged yesterday to keep its aggressive stimulus policy at least until the end of the year, arguing that inflation pressures in the eurozone remained weak despite expectations of faster price growth.

While expected, the decision showed the ECB was resisting calls from Germany to start winding down its 2.3-trillion-euro (US$2.4 trillion) bond-buying scheme, or at least signal its plan to do so, as growth and inflation rebound.

Instead, the Frankfurt-based central bank stuck to its plan of continuing the purchases until December. Crucially, it also pledged to keep interest rates at current, record-low levels until long after that, or even cut them if necessary.

“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 in terms of size and/or duration,” the ECB said in a statement.

Justifying the stance at his regular news conference afterward, ECB President Mario Draghi presented upgrades in inflation expectations for this year and next but argued they did not alter the overall picture.

“There is no sign yet of a convincing upward trend on underlying inflation,” he said, adding that inflation — which hit its target of almost 2 percent last month — was expected to rise “only gradually” in the medium term.

The ECB now sees headline inflation of 1.7 percent this year compared with an earlier estimate of 1.3 percent, and 1.6 percent next year compared with a previous 1.5 percent estimate. It saw prices rising a flat 1.7 percent in 2019.

The ECB is scheduled to cut the pace of its bond purchases by a quarter from next month but continue them at least until year-end, or longer if it thinks inflation is below target.

But nearly a decade after the 19-country currency bloc’s woes began, its economy is looking in better shape.

Economic sentiment is at a six-year high, trade is rebounding, services and manufacturing output is rising, and unemployment is at its lowest since 2009.


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