Top ECB official: Time to discuss stimulus withdrawal

Jun 6, 2018

A top European Central Bank official says policymakers will begin discussions next week on withdrawing the bank's bond-purchase stimulus _ suggesting the ECB isn't overly worried by the recent political upheaval in Italy

FRANKFURT, Germany — A top European Central Bank official said Wednesday that policymakers will begin discussions next week on withdrawing the bank's bond-purchase stimulus — suggesting the ECB isn't overly worried by the recent political upheaval in Italy.

"Next week, the governing council will have to assess whether progress so far has been sufficient to warrant an unwinding of our net asset purchases," executive board member Peter Praet said in a speech at a conference in Berlin.

Currently, the bank says it will keep buying 30 billion euros ($35 billion) a month in bonds at least through September. Analysts think the bank will phase them out around the end of this year.

The governing council meets June 14 in Riga, Latvia. The euro rose about a half a cent against the U.S. dollar, to $1.1773, after Praet's remarks. Stimulus withdrawal should tend to send the euro higher by introducing higher interest returns on euro holdings.

Italy's new populist government has proposed extra spending, briefly raising market fears of a renewed eurozone debt crisis. Markets have calmed since because it's not clear how far the new government of Premier Giuseppe Conte will actually go with its promises of new government spending.

Economist Carsten Brzeski at ING Germany said the speech suggested that next week's meeting would bring "clear hints" at the end of the bond purchases, but without setting a fixed end date. The bank could then use the July 26 meeting to announce an extension at a slower pace, at least until December. The purchases could then be stopped at year's end.

That's assuming the bank can clearly show it has succeeding in its goal of raising inflation to close to 2 percent. Currently, annual inflation in the 19 countries that use the euro currency is 1.9 percent. The bank says it must be confident that inflation will remain stronger even after the stimulus is withdrawn.

The bond purchases are a way of pushing newly created money into the economy, a step that should raise inflation and make credit easier to obtain. Europe's economic recovery has slowed recently but growth remained at a respectable 0.4 percent in the first quarter of 2018 over the quarter before.