ECB Seeks Clarity on Economy Before Next Move -- 4th Update
April 26 2018 - 12:39PM
Dow Jones News
By Tom Fairless and Paul Hannon
FRANKFURT -- European Central Bank President Mario Draghi put
off a decision on the future of the bank's giant bond-buying
program on Thursday, saying officials want to better understand a
recent slowdown in the eurozone economy before taking any fresh
steps to phase out easy money.
A recent "moderation in growth" across the 19-nation currency
union probably reflected temporary factors such as cold weather or
the timing of public holidays, Mr. Draghi said at a news conference
Thursday. He said, however, taht the slowdown could also reflect
more durable weaknesses.
The ECB's decision to stand pat had been expected, but Mr.
Draghi's caution suggests the ECB could yet delay a decision to
phase out its EUR30 billion ($36.6 billion)-a-month bond-buying
program, known as quantitative easing or QE, which is currently due
to run at least through September.
Understanding what lies behind the slowdown is "essential for
informing our next decisions," Mr. Draghi said. "The very first
thing we have to do is place what has happened in the proper
context."
The euro settled lower against the dollar at $1.2116, down half
a cent on the day. The yield on 10-year German government bonds
slid to 0.59%. Yields fall as prices rise.
Analysts said the ECB could delay a decision on the fate of QE
until July if economic data remain weak, but that its plans to
phase out easy money probably remained intact. The eurozone's
economic growth rate for the first quarter will be published on May
2.
"The ECB is largely brushing off concerns about a soft patch in
the economy for the moment," said Frederik Ducrozet, an economist
with Pictet Wealth Management in Geneva.
With eurozone growth still strong by historical standards, most
economists expect the ECB to phase out its bond purchases by
December -- four years after the Federal Reserve halted its own QE
program -- and to start raising interest rates late next year.
The eurozone economy grew at the fastest pace in a decade during
2017, prompting the central bank to reduce its monetary stimulus by
halving its monthly purchases of bonds in January.
However, a raft of recent economic data, from industrial
production to retail sales, suggest the eurozone economy slowed in
the first quarter of 2018 after outpacing the U.S. economy last
year.
Earlier Thursday, Sweden's central bank pushed back a plan to
raise interest rates for the first time since 2011, warning that
inflation in the largest Nordic economy remains too weak.
The slowdown in the currency bloc comes amid burgeoning risks in
the world economy such as currency volatility, rising oil prices
and the threat of trade wars.
Mr. Draghi said the slowdown, for now, hadn't fundamentally
changed the central bank's expectations for the economy.
But that judgment appears to be provisional, and Mr. Draghi said
it was possible the slowdown could mark the start of "a more
significant decline."
He said the central bank's rate-setting committee hadn't
discussed the future of QE or their key interest rates at their
two-day meeting.
The ECB chief also struck a cautious note on trade, warning that
"risks related to global factors, including growing protectionism,
have become more prominent." He said business confidence had
already been weakened by the possibility of higher tariffs.
Write to Tom Fairless at tom.fairless@wsj.com and Paul Hannon at
paul.hannon@wsj.com
(END) Dow Jones Newswires
April 26, 2018 12:24 ET (16:24 GMT)
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