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ECB keeps eurozone stimulus tap open

Despite eurozone growth and inflation slowly picking up pace, the European Central Bank has chosen to retain its ultra-loose monetary policy, arguing it is still needed to keep the recovery on course.

The European Central Bank (ECB) announced Thursday, its benchmark refinancing rate would remain at a historical low of zero percent, and the deposit rate at minus 0.4 percent. The marginal lending rate would also remain unchanged at 0.25 percent.

With its decision, the central bank for the euro currency area chose to maintain its monetary stimulus, after having extended a controversial asset-buying program just last month.

In addition to keeping interest rates low, the bank is spending 80 billion euros ($85.2 billion) a month on buying sovereign eurozone bonds and other assets, a policy known as known as quantitative easing (QE), in a bid to fuel growth.

Last month, it agreed to cut its asset buys by a quarter from April but extended the 2.3 trillion euro scheme until the end of the year, promising substantial accommodation and extended market presence.

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ECB extends bond purchases - with a caveat

Mixed picture

ECB President Mario Draghi argues the bank has done its part to mend growth. But the recovery in the 19-nation bloc is not self-sustaining and underlying inflation is still weak.

Inflation is still just half of the bank's 2 percent target and the jump is mostly down to higher oil prices, while underlying price growth remains dangerously weak. So turning down the taps now is inappropriate, EEB officials argue, 

"Draghi seems to be comfortable to allow inflation to drift higher before declaring full victory over deflation," David Kohl, an economist at Swiss private bank Julius Baer, told the news agency Reuters.

uhe/hg (Reuters, dpa, AFP)

 

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