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European Central Bank Holds Rates Steady European Central Bank Holds Rates Steady
(about 1 hour later)
FRANKFURT — The European Central Bank left its main borrowing rate unchanged on Wednesday, but it was expected to emphasize its determination to stimulate the eurozone economy as long as necessary to raise the inflation rate from its dangerously low level. FRANKFURT — The European Central Bank left its main borrowing rate unchanged on Wednesday, but intends to continue with its bond-purchasing program, meant to stimulate the eurozone economy, as long as necessary to raise the inflation rate from its dangerously low level.
At a news conference after the announcement, the central bank’s president, Mario Draghi, cited a “modest growth trend’’ for the eurozone that he said would broaden this year.
But Mr. Draghi spent much of the news conference fielding — and in some cases, deflecting — questions about Greece. Mr. Draghi said that the European Central Bank continued to want Greece to remain part of the euro currency union, and that there was a “general will and strong determination that an agreement can be found’’ as Athens continues debt negotiations with its creditors.
But he hinted that Greece’s longstanding debt and economic crisis was at least partly the fault of the country’s leaders, whom he said did not respect the economic terms of agreements during five years of bailout programs.
“Programs have been designed, have been agreed, but implemented only partially,’’ Mr. Draghi said.
Sticking when possible to the monetary policy issues that he was clearly more comfortable discussing, Mr. Draghi said the central bank was revising upward its inflation forecast for the full 2015 year, to 0.3 percent — the rate that had already been reported for May.
The eurozone’s inflation rate, he added, seems to have “bottomed out’’ at the beginning of the year. Concerns at the time about a possible lapse into deflation — an economically debilitating condition of falling wages and prices — prompted the European Central Bank to announce a stimulus program that is now underway.
But Mr. Draghi said that growth in the eurozone was “likely to remain dampened’’ by what he referred to as structural economic impediments that would require changes by national governments. The central bank left its growth projections unchanged, forecasting an annual growth rate of 1.5 percent for this year, 1.9 percent in 2016 and 2 percent for 2017.
The central bank left its benchmark rate at 0.05 percent on Wednesday, as expected. That is the rate at which commercial banks can borrow from the central bank, and it is typically used to steer market interest rates.The central bank left its benchmark rate at 0.05 percent on Wednesday, as expected. That is the rate at which commercial banks can borrow from the central bank, and it is typically used to steer market interest rates.
Having effectively run out of room to cut rates further, the European Central Bank has resorted to new methods to push down the cost of borrowing and to stimulate growth and inflation in the 19 countries in the eurozone. In March, the central bank began buying government bonds and other debt at a rate of 60 billion euros, or about $66 billion, a month, a form of money-printing intended to inject cash into the financial system.Having effectively run out of room to cut rates further, the European Central Bank has resorted to new methods to push down the cost of borrowing and to stimulate growth and inflation in the 19 countries in the eurozone. In March, the central bank began buying government bonds and other debt at a rate of 60 billion euros, or about $66 billion, a month, a form of money-printing intended to inject cash into the financial system.
At a news conference scheduled for Wednesday afternoon, Mario Draghi, the president of the European Central Bank, was expected to express his resolve to continue the bond-buying program until inflation is on track to reach the official target of just below 2 percent. Mr. Draghi has previously said the central bank would keep buying the bonds until at least September 2016, and would continue longer if needed. The central bank is expected to continue the bond-buying program until inflation is on track to reach the official target of just below 2 percent. Mr. Draghi has previously said the central bank would keep buying the bonds until at least September 2016, and would continue longer if needed.
After falling for several months and remaining flat in April, inflation in the eurozone rose 0.3 percent in May from a year earlier, preliminary figures showed on Tuesday. That was more than expected but still well below the central bank’s target. On Wednesday, Mr. Draghi said the central bank expected inflation to continue rising, but that it estimated inflation would reach only 1.8 percent through 2017.
Greece’s debt talks were also expected to be a major topic of discussion at the European Central Bank on Wednesday. Mr. Draghi was among the European leaders who met in Berlin late Monday to work on what amounted to a “take it or leave it” offer to the Greek government.
Greece needs more money soon if it is to repay its creditors — the European Commission, the International Monetary Fund and the European Central Bank — billions of euros in loan obligations that will come due in the coming days and weeks. But Athens has balked at the conditions the creditors have imposed, like additional reductions in pensions and changes to regulations that make it hard for companies to lay off workers.
The European bond-buying program, known as quantitative easing, appears to have helped make credit more available to businesses and consumers in countries like Italy and Spain, analysts say, a good sign for the prospects of economic growth.The European bond-buying program, known as quantitative easing, appears to have helped make credit more available to businesses and consumers in countries like Italy and Spain, analysts say, a good sign for the prospects of economic growth.
“Financial conditions have continued to ease in the euro area,” analysts at Morgan Stanley said in a report on Monday. “Notably, the pace picked up after the E.C.B. embarked on Q.E.,” it said, referring to quantitative easing. But at Mr. Draghi’s news conference on Wednesday, Greece’s debt talks were a subject he could not avoid. Mr. Draghi was among the European leaders who met in Berlin late Monday to work on what amounted to a “take it or leave it” offer to the Greek government.
The availability of bank loans for small- and medium-size companies — the backbone of the eurozone economy — has begun to improve, according to a survey published on Tuesday by the European Central Bank. The improvement was the first recorded by the survey since 2009, the central bank said. Companies also said, however, that banks had become more rigorous in requiring collateral. Greece needs more money soon if it is to repay its creditors — the European Commission, the International Monetary Fund and the European Central Bank — billions of euros in loan obligations that will come due in the coming days and weeks. But Athens has balked at the conditions the creditors have imposed, like additional reductions in pensions and changes to regulations that make it hard for companies to lay off workers.
Surveys of business sentiment and other indicators have raised questions about whether a nascent economic recovery in the eurozone is already losing momentum. In addition to central bank stimulus, much of the impetus for growth has come from lower fuel prices, which leave consumers with more money to spend on other things. Those lower prices could prove temporary, however. Asked directly by a reporter what would happen if Greece missed a debt payment due to the International Monetary Fund on Friday, Mr. Draghi declined to speculate.
“Enthusiasm surrounding the eurozone recovery has been overtaken by new realism,” Carsten Brzeski, chief economist for Germany and Austria at ING Bank, said in a note to clients on Monday. But he subsequently said that a Greek default on its I.M.F. loans would prompt the European Central Bank to look anew at the ability of Greek banks to use their government’s bonds as collateral for emergency liquidity loans from the European Central Bank. The emergency loan program, he said, “is designed to provide credit to the private sector, not to finance the government.”
Growth in the currency bloc most likely slowed in May, according to the final results of a survey of business sentiment published on Wednesday by the research organization Markit. However, the region’s unemployment rate improved, dipping to 11.1 percent in April, the lowest rate in three years, according to official figures published Wednesday.
The central bank is scheduled to release new estimates for eurozone growth and inflation on Wednesday.
Even if the outlook is for the inflation rate to rise, Mr. Draghi is likely to emphasize that the central bank will not waver in providing economic stimulus to the eurozone until it is clear that the risk of deflation — a broad fall in prices considered toxic for growth — has passed.
In addition to helping improve the flow of credit, the bond-buying plan could also prove to be important in stabilizing financial markets if, as feared, Greece is unable to keep paying its government debt and is forced out of the eurozone.