ECB: Stimulus working, grounds for optimism about economy

FRANKFURT – European Central Bank officials saw “grounds for cautious optimism about the economy” at their last meeting as the bank’s stimulus measures take hold across the 19 countries that use the euro as their currency.

A summary of the bank’s April 21 meeting released Thursday indicates the central bank is now focused on implementing measures that have been decided but are still in the pipeline — rather than readying new ones.

The summary said “patience was needed” for stimulus to fully unfold as the bank prepares to start corporate bond purchases in June. Those would pump more newly printed money into the economy to raise inflation from a dangerously low level of minus 0.2 per cent annually and help sustain growth.

The eurozone economy expanded by a relatively strong quarterly rate of 0.5 per cent in the first three months of the year, but its outlook remains mixed.

The ECB’s focus on implementation rather than new measures comes as the U.S. Federal Reserve is gradually withdrawing stimulus by raising interest rates. Minutes of the most recent Fed meeting in April indicate that officials widely see a rate increase as likely in June if news about the U.S. economy continues to be good.

Stimulus measures have supported stock and bond prices and their withdrawal can make investors nervous.

The ECB’s benchmark rate is at a record low of zero and it is even levying a negative rate of 0.4 per cent on deposits it takes from commercial banks to spur them to lend the money rather than hoard it. It is also buying government and some private-sector bonds, a step that in effect prints new money.

The summary of the meeting shows the board also decided to publicly remind German skeptics critical of its stimulus measures that the bank is politically independent. German economists and legislators have criticized the ECB’s low interest rates as wiping out returns for savers and retirement programs. German Finance Minister Wolfgang Schaeuble at one point said the ECB had contributed to the rise of the right-wing Alternative for Germany party, which wants to restrict immigration and hold a referendum on leaving the euro.

The ECB statement didn’t name Germany but said that “in light of recent public criticism that had appeared to link the ECB’s decisions to developments in the political sphere in a member state” it was time to reaffirm the bank’s legal independence under the EU treaty. The treaty forbids it from taking orders from elected officials.

ECB officials have publicly pushed back by saying that such attacks create uncertainty that only means the bank will have to keep its measures in effect even longer.