FRANKFURT - The European Central Bank (ECB) has decided to keep its stimulus programmes unchanged, leaving President Mario Draghi with the job of explaining at his news conference why he is pressing on with the measures when inflation has reached the bank's target.
Draghi argues that the recent rise in the annual inflation rate to 2% -- past the ECB's target of just under 2% -- comes from higher oil prices, and not from fundamental improvements in the economy such as higher wages for workers.
Excluding volatile prices for fuel and oil, inflation remains stuck at 0.9%.
The bank decided on Thursday to keep its bond purchases from banks unchanged at €80 billion (US$85 billion) this month and €60 billion per month through the end of the year. It held its key short-term interest rate benchmark at zero, and kept its rate on deposits from commercial banks at minus 0.4%. That is in effect a tax aimed at pushing banks to lend the money, not stash it at the ECB's super-safe deposit facility.
Draghi has also said the economy could use the support during a potentially turbulent political period. British Prime Minister Theresa May has said she will give official notice by the end of this month that Britain is leaving the European Union and its free trade zone. Britain does not use the euro but is a key trade partner for the EU members that do use the currency. Brexit means finding a new trade relationship with Europe, which could include tariffs on imports and exports, depending on how drawn-out negotiations go. The uncertainty alone could weigh on business activity by making executives postpone investment decisions.
Now that inflation has reached 2%, calls have arisen to start withdrawing the stimulus, particularly in Germany where the stimulus was never popular in the first place. German economists, media and politicians have bemoaned low interest rates on savings and pension products. Some have argued that the low rates bail out indebted governments such as Italy, which face less pressure to reduce budget deficits because they can borrow cheaply.
Draghi has pushed back against critics so far with the backing of an apparent majority on the bank's 25-member governing council. Nineteen of the members are the heads of central banks from the member countries -- several of which need the stimulus far more than Germany.
The eurozone economy grew 1.7% last year as the currency union recovers from a crisis over high debt that threatened to break it apart in 2011-2012. Unemployment has slowly fallen to 9.6% with big differences among member countries; German is at 3.9% but Greece, still struggling to adjust after piling up too much debt and being bailed out by other countries, has a painfully high rate of 23%. For comparison, the United States has 4.8% unemployment and a stronger recovery.
The ECB is the chief monetary authority for the 19 countries that use the euro currency.