European Central Bank head to sift mixed signs on economy
FRANKFURT, Germany (AP) - The European Central Bank has left its key interest rates and stimulus settings unchanged as it sizes up conflicting signs about how well the economy is doing in the 19 countries that use the euro.
Markets are waiting to hear bank President Mario Draghi's assessment at a news conference following the stand-pat decision by the bank's 25-member governing council.
The eurozone economy turned in strong growth of 2.5 percent last year, the best in a decade. But recent economic data has been mixed. If growth shows signs of slowing that could be a reason to extend the bank's 30 billion euros ($36 billion) in bond purchases. Currently they are set to run at least through September.
Recent economic data has been conflicting, with business managers' surveys indicating continued robust activity, contrasted with dips in industrial production in the first two months of the year. The key question is whether the economy is really running out of steam or just going through a period of slightly slower growth. Fears about a trade conflict between the U.S. and China involving higher import taxes have weighed on some gauges of business confidence.
Analysts think Draghi will be in no hurry to signal whether the bond purchases, which began in March 2015, will continue past September or not. One reason for that is markets could anticipate any decision to end the program by prematurely sending up interest rates, which would blunt the remaining impact of the stimulus. Many expect a clearer sign on what will happen after September at the bank's June 14 or July 26 meeting.
The ECB is trying to push up inflation from the current annual rate of 1.3 percent toward its goal of just under 2 percent, considered best for the economy. The recovery should push up prices as more people get jobs and wages rise along with demand for labor. But that has been slower to happen than usual. Any slowing of growth could mean it could take even longer for the ECB to reach its goal.
The ECB is lagging the U.S. Federal Reserve in raising interest rates, which central banks lowered sharply to counter the effects of the 2008-2009 financial crisis and the Great Recession. The U.S. economy has moved ahead faster and the Fed's benchmark rate is now 1.5 percent, compared to zero for the ECB. Years of stimulus have sent stock and bond markets higher and central bankers are at pains to move carefully as they halt or withdraw stimulus to avoid market turbulence.
On top of leaving the short-term interest rate at zero on Thursday, it also did not touch the deposit rate at which the ECB takes deposits from commercial banks. That rate is minus 0.4 percent, meaning banks pay a penalty on the funds they deposit. The aim is to push them to lend the money instead.