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- Mohamed A. El- Erian: What will the ECB do at the meeting this week
Mohamed A. El- Erian: What will the ECB do at the meeting this week
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Loading... The European Central Bank has faced difficult decisions in recent years. It faces another one when
its Governing Council meets on Thursday in Estonia. The decision will be a close one, at least it should be. And, once again, the euro zone's central bank is likely to err on the side of significant prudence by avoiding any notable reduction in monetary stimulus -- even though the balance of arguments increasingly points to a different policy path.
The euro zone is experiencing higher economic growth, with significantly less dispersion among its member countries. Forward-looking indicators point to further growth acceleration in the months ahead. Financial conditions overall have eased considerably, both in Europe and in the rest of the world.
-- The risk of geopolitical shocks has diminished with the passing of the Dutch and, especially, French elections. The currency has strengthened against the U.S. dollar, raising the potential of growth headwinds down the road. There are growing political pressures to curtail the ECB's prolonged use of unconventional policies.
Yet the ECB seems in no rush to tighten monetary policy. Inflation is still too low for its liking and some officials there still remember the premature tightening of 2011. Then there are concerns about possibly destabilizing Italy in the run-up to elections there.
On Thursday ECB will most likely revise upward its economic assessment but leave its policy stance unchanged -- that is, announce no reduction in its asset purchase program and no hike in interest rates. But it's a decision that will, and should, be hotly debated.
Source: Bloomberg Pro Terminal
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