European Central Bank

ECB seen continuing easy-money policy at meeting on Thursday

PUBLISHED : Wednesday, 03 July, 2013, 12:00am
UPDATED : Wednesday, 03 July, 2013, 5:00am

The European Central Bank, eyeing tentative signs of euro-zone economic recovery, is expected to eschew any major decisions tomorrow and keep its easy-money policy in place.

That is in contrast with plans by the US Federal Reserve to begin to withdraw its economy-boosting stimulus.

In Europe, such a step is far off, and ECB policymakers have gone out of their way to assure investors that they will not follow the Fed any time soon, seeking to calm markets.

But like the United States, where recovery is far more advanced, there are signs of growth. So rather than pump more money into the economy, the ECB is likely to hold interest rates at a record low of 0.5 per cent. They will stay there until at least the end of next year, economists forecast.

"We don't expect any ground-breaking policy response (at the ECB meeting)," Nomura economist Nick Matthews said. "At the moment the incoming data is going to be viewed as in line with the base-line scenario (of mild recovery) and that will continue to give the ECB some breathing space."

Euro-zone annual inflation edged closer to the ECB's target for a second month in a row, reaching 1.6 per cent in June from 1.2 per cent in April, while European manufacturing activity showed signs of stabilisation even as unemployment remained high.

"Thursday is Independence Day in the United States and this is going to be the main message from the ECB in terms of declaring it … [has] an independent stance, emphasising that the exit is distant and reinforcing the message to markets that the ECB is not the Fed," Matthews said.

Investors will nonetheless listen carefully to ECB president Mario Draghi at the news conference after the meeting for any clues as to whether the ECB is more open to deploying its policy options than a month ago, when he said they were on the shelf.

In his strongest guidance so far, Draghi said last week an exit from the ECB's ultra-loose policy stance "is still distant since inflation is low and unemployment high". The ECB can still cut interest rates a little bit further if pressure on short-term money market rates gets too strong.