WORLD

ECB holds rates, gives current stimulus time to work

By 김윤미
  • Published : Jun 2, 2016 - 21:17
  • Updated : Jun 2, 2016 - 21:17

VIENNA (AP) -- The European Central Bank is expected to underline that its current stimulus measures are boosting the economy of the 19 countries that use the euro_ and need time to work before any new monetary jolts are added.
 
After the bank left its key interest rates unchanged at its meeting Thursday, President Mario Draghi is likely to repeat his calls for national governments to take more steps themselves to boost growth and not rely on the central bank so much. He has called for governments to cut red tape that hinders hiring and starting a business, and to spend more on infrastructure and other investment if their finances are in shape to do it. 
 
The ECB was not expected to announce major new stimulus measures at Draghi’s news conference, following the meeting of its 25-member governing council in Vienna. 
 
Thursday's decision leaves its benchmark rate at zero, a record low. The refinancing rate is what the central bank charges for loans to commercial banks and influences other short-term market interest rates. 
 
The council also left at minus 0.4 percent the rate it charges on overnight deposits that commercial banks leave with it. That measure is aimed at pushing banks to take the risks of lending the money rather than hoard it.  
 
On top of rate cuts, the bank is buying 80 billion euros ($89 billion) in bonds each month with newly-printed money in an effort to raise inflation, which at minus 0.1 percent annually is a sign of weak demand and far below the bank's goal of just under 2 percent.  
 
The monthly purchases, to be conducted at least through March 2017, will pump 1.74 trillion euros ($1.94 trillion) that didn't exist before into the banking system in hopes that all that money finds productive use as credit to businesses and consumers. 
 
The bank doesn't use a printing press to create money, but simply credits the commercial banks' reserve accounts at the ECB with new euros _ something it is entitled to do as the legal issuer of the euro currency.
 
The ECB this year decided to expand the bond-buying program, which has so far purchased mainly government debt, to also include corporate bonds. On Thursday it decided on a start date of June 8 for the purchases of non-bank corporate bonds.
 
Central bank policies have wide-randing impact on people's lives, determining everything from what people earn on their savings _ not much these days _ to what they pay each month in interest on their mortgages. 
 
Draghi is expected to underline that the bank's stimulus measures are still coming on line and will need time to take effect, and that it's up to governments to take more steps to improve growth. The eurozone economy grew by a decent quarterly rate of 0.5 percent in the first quarter, but unemployment remains high at 10.2 percent and is coming down only slowly. 
 
He is also expected to discuss another round of ultra-cheap loans to banks, another program decided at the March 10 meeting. The rate on the loans can be as low as the deposit rate, which is currently negative. That means the banks would be paid a small premium to take the money. The program will start June 22.
 
The measures are aimed at increasing lending, business spending on investment, and, ultimately, growth and inflation, as demand for goods increases.
 
Draghi might also say something about when the ECB might restore Greek banks' access to regular cheap ECB lending.  It could do that by permitting the renewed use of Greek government bonds as collateral. Greek bonds had been eligible _ despite their low ratings _ under a special waiver that was suspended due to the Greek government's financial woes. 
 
Restoring the waiver would let Greek banks access ECB money instead of using more expensive emergency credit from the Greek national central bank.  
 
That would be a step toward getting Greek banks back on their feet. They had to be bailed out under the latest financial aid program for the troubled country and are currently laboring under capital controls that restrict cash withdrawals.