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Business

European Central Bank Still Concerned About Low Inflation

The account of a July 20 meeting shows caution by the ECB about how quickly to signal to investors that they would ease off their bond-buying stimulus program

The headquarters of the European Central Bank is seen through flowers in Frankfurt, Germany, Wednesday, Sept. 7, 2016, photo: AP/Michael Probst
1 month ago

FRANKFURT – The European Central Bank’s (ECB) policymakers are still concerned that inflation in the 19-nation eurozone is too low despite an improving economy and seem worried about the strength of the shared euro currency, their last meeting shows.

The account of the July 20 meeting, published Thursday, shows the rate-setters noted that market investors seemed overly aggressive in thinking the bank would wind down its stimulus program soon. That was reflected in the value of the euro, which has risen in recent weeks on expectations that the ECB would gradually move away from its ultra-low rates monetary policy.

Although the eurozone economy is growing at a strong pace, inflation is only at an annual rate of 1.3 percent, well below the 2 percent target that the ECB considers most suitable for a healthy economy.

The meeting’s account says “concerns were expressed about a possible overshooting” in expectations among investors, especially in currency markets, about how soon the ECB would let market interest rates rise.


Overall, the account shows caution by the ECB about how quickly to signal to investors that they would ease off their bond-buying stimulus program. The program seeks to keep market interest rates low — which in turn affect the costs of loans and mortgages — by flooding the financial system with newly created money. The ECB is pumping 60 billion euros ($70 billion) a month into the economy.

“There was broad agreement among members that there was presently a continuing need for steady-handed and persistent monetary policy,” the account said.

Many investors think the ECB will signal in the autumn its intention to dial down the bond-buying program, and to actually do so next year.

The euro slumped upon Thursday’s report, as some investors found the comments more cautious than expected. The currency fell almost a cent against the dollar, or 0.6 percent, to $1.1695.

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