European Central Bank keeps stimulus in place

Asian shares down ahead of Comey, ECB and UK election

"Strong growth and low inflation probably allows Draghi to be upbeat but hold back from big changes today", said Jim Reid, a strategist at Deutsche Bank.

All told, eurozone growth during the first quarter was double that of the US, a welcome development for the central bankers at the ECB ahead of their latest policy decision Thursday afternoon in Tallinn, Estonia.

The bank's adjusted statement represents a cautious step toward an announcement, expected later this year, that the bank will taper and end its extraordinary monetary stimulus as growth and inflation improve. The 60 billion euros ($67 billion) per month in bond purchases are to run at least through the end of the year.

Analysts think the purchases will be tapered next year, but the bank has moved gingerly in indicating when it might be ready to announce a schedule for reducing and then ending them.

But today the European Central Bank president confronts just such a dilemma --the question of how to respond to better than expected economic data when ultra-loose monetary policy has become a way of life. Draghi made another significant tweak by saying risks to growth are now "broadly balanced" - a change from the April meeting when risks were "tilted to the downside".


Sources told Reuters last week the European Central Bank will acknowledge the improved economic outlook by removing a reference to "downside risks" in its statement.

But the bank trimmed inflation forecasts for the next three years and said "substantial" amounts of stimulus through its unprecedented asset purchase scheme were still needed.

While the European Central Bank is widely expected to keep policy unchanged on Thursday, including its 2.3 trillion euro ($2.59 trillion) bond-buying programme and sub-zero interest rates, sources told Reuters it will acknowledge the improved economic outlook by removing a reference to "downside risks" in its statement.

Analysts expect that provision to be dropped in coming months as the bank edges toward announcing how it will phase out the bond purchases next year. In fact, recent commentary from ECB President Mario Draghi has pointedly stressed that now is not the time to be letting up on stimulus. While few expect that to happen, the words underline that the bank is not yet willing to call time on the stimulus program.

The ECB held Thursday's policy meeting in Tallinn, Estonia, one of the occasional meetings held away from the bank's Frankfurt headquarters. The bank has also cut interest rates to record lows, imposing a deposit rate of minus 0.4 per cent on some of the private bank reserves parked in its coffers.

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