The European Central Bank has confirmed economists’ expectations by keeping its monetary policy stance unchanged. But a rise in inflation and growing dissatisfaction with the ECB’s unprecedented stimulus program in Germany will only increase the pressure on the central bankers to change course at their next meeting on April 27.
Irked by multiple extensions to the ECB’s generous bond-buying program and the effects of its rock-bottom interest rates on banks, insurers and savers, German economists and politicians have stepped forward in the past few weeks to call for adjustments.
European central bankers have so far been undeterred by the Germany-led complaints and, in a widely-expected move Thursday, decided to keep the ECB’s rate main refinancing rate at a record low of 0 percent. Their separate rate on overnight bank deposits, which has become the ECB’s primary interest rate tool in the past couple years as a means of forcing banks to lend out their reserve cash, was also kept unchanged in negative territory at -0.40 percent.
The ECB also withheld any changes to its controversial asset-buying program, vowing to maintain stimulus policy at least until the end of the year.
The central bank has been buying €80 billion ($84.4 billion) in corporate and government bonds for the past two years. It will reduce that amount slightly by €20 billion to €60 billion per month starting in April – a move that was already announced at the end of last year.
Germany’s central bankers and economists want more – and soon.
“There is no sign yet of a convincing upward trend on underlying inflation.”
A recent uptick in consumer prices has upped the pressure on the central bank and its president Mario Draghi. Euro zone inflation grew by 2 percent in February, compared to the same month the previous year, while prices in Germany even jumped by 2.2 percent in that month – clearly ahead of the 2-percent inflation goal set by the ECB.
““It would be better to further scale back bond purchases as of May,” said Clemens Fuest, head of the Munich-based Ifo Institute, pointing to the higher inflation numbers. “It should now take its foot off the gas and scale back its bond purchases by 10 billion euros per month,” he added.
Mr. Draghi, however, made clear he doesn’t expect the high inflation spell to be permanent. Following the rate announcement, he told reporters during a press conference that recent changes to headline inflation figures could be “transient” and without any “implication for the medium-term outlook for price stability.”
“There is no sign yet of a convincing upward trend on underlying inflation,” the ECB president said.
Still, there has been some movement. The ECB adjusted its own forecast for euro-zone headline inflation to 1.7 percent for this year, up from a previous 1.3 percent. Yet Mr. Draghi’s words are unlikely to soothe the concerns of euro-zone monetary hawks, above all in Germany.
German Finance Minister Wolfgang Schäuble earlier Thursday called for a “timely start to the exit” from the ECB’s loose monetary policy, Reuters reported. And Germany’s central bank governor, Jens Weidmann, has frequently weighed in on the debate to trim the quantitive easing program.
“All in all, the ECB keeps its easing bias but has also started to gradually incorporate some hawkish sounds,” wrote ING Diba analyst Carsten Brzeski in a note to clients. “This strategy is preparing the grounds for a tapering announcement after the Dutch and French elections if growth and inflation follow their current path.”
“I don't think there is any merit in attacking Germany. ”
While Mr. Draghi didn’t give in to hawkish requests just yet, he defended Germany against attacks from the new Trump administration in the United States, which has called Europe’s largest economy a currency manipulator.
“I don’t think there is any merit in attacking Germany,” Mr. Draghi told reporters when asked about recent remarks by U.S. President Donald Trump’s top trade advisor.
“I answered the same question in the European Parliament two or three weeks ago: the currency of Germany is the euro, the ECB is independent as laid down in the European treaties and statutes; the exchange rate of the euro is determined by market forces,” Mr. Draghi said.
Peter Navarro, the head of Mr. Trump’s new National Trade Council, had told the Financial Times during an interview at the end of January that Germany was using a “grossly undervalued” euro to gain advantage over its trading partners.
Mr. Draghi also provided a boost to the euro when he defended the single-currency union against skeptics who see it at risk by populist movements across the country.
“The euro is here to stay. It is irrevocable,” Mr. Draghi said.
The currency rallied slightly and was up 0.03 percent against the U.S. dollar at 15:45 GMT following Mr. Draghi’s remarks.
Tina Bellon is an editor with Handelsblatt Global. Felix Holtermann of Handelsblatt and Christopher Cermak of Handelsblatt Global contributed to this story. To contact the author: firstname.lastname@example.org