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ECB to Keep Stimulus Running           04/22 06:10

   

   FRANKFURT, Germany (AP) -- The European Central Bank is expected to signal 
Thursday that even if inflation rises later this year it won't consider cutting 
back support for Europe's economy, which is lagging the U.S. and China amid a 
drawn-out struggle with the COVID-19 pandemic.

   Extended lockdowns amid a resurgence of the virus, coupled with slow 
vaccination rollouts, have pushed back hopes for what should eventually be a 
robust rebound.

   The central bank for the 19 European Union countries that use the euro still 
has almost 900 billion euros left in its pandemic bond purchase program, set to 
run through March 2022. So analysts don't expect an announcement of more 
support when the bank's 25-member governing council holds its regular policy 
meeting.

   Instead, bank President Christine Lagarde will likely reiterate that the 
bank is nowhere near withdrawing any of its extraordinary measures, even if 
inflation jumps later this year. Consumer inflation is expected to temporarily 
climb above 2% annually in the later part of the year.

   But the bank says that will be the result of transitory factors such as the 
withdrawal of pandemic tax breaks and comparisons with an earlier period of 
very low oil prices -- and not a reason to withdraw any of its efforts to keep 
credit cheap for companies, governments and consumers. Inflation in the 
eurozone was an annual 1.3% in March. The bank's goal is close to but below 2%.

   U.S. Federal Reserve Chair Jerome Powell has taken a similar view, saying 
that price increases later this year could be due to temporary factors and that 
the Fed would not begin raising rates until a recovery of jobs lost in the 
pandemic was "effectively complete" and that inflation appears "on track to run 
moderately above 2% for some time."

   The eurozone economy shrank by 6.6% last year and economists say it may have 
contracted in the first quarter of this year as well. Output is not expected to 
reach pre-pandemic levels until mid-2022, lagging well behind other major 
pillars of the global economy such as the US and China.

   The U.S. could reach pre-pandemic output as early as this month, according 
to an April 14 forecast from the Conference Board, while China was the only 
major economy to grow in 2020. The U.S. rebound is being propelled by massive 
relief and stimulus spending by the federal government. European governments 
have also spent heavily on pandemic relief but their 750-billion euro recovery 
fund at the EU level will only starting paying out for digital and green 
projects this year.

   One ECB board member, Klaas Knot from the Netherlands, has suggested the ECB 
could start scaling back pandemic bond purchases later this year in time to 
phase them out in March 2022. For now that position appears to be in the 
minority but could signal friction between stimulus advocates and skeptics when 
the scheduled end of the bond purchase stimulus draws nearer. The purchases are 
a way of pumping newly created money into the economy, a step which helps keep 
borrowing costs low.

 
 
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