Markets await comment as ECB says no change in key rate

FRANKFURT, Germany (AP) – Analysts are expecting European Central Bank head Mario Draghi to emphasize the bank’s willingness to expand its stimulus efforts if needed to help the economy.
But professional ECB watchers are not expecting him to announce any dramatic new measures Thursday, even though investors are worried about plunging oil and stock prices and the prospect of weaker growth in China.
Draghi is to speak at a news conference following the bank’s decision to leave its benchmark interest rate unchanged at a record low 0.05 percent.
Market participants are waiting to hear his take on plunging oil prices and stocks to gauge how close the ECB might be to taking more action. It expanded its stimulus at its last meeting Dec. 3 by extending purchases of bonds with newly printed money for a further six months, and cut one of its key interest rates.
Since that meeting, however, oil has fallen steeply from around $45 per barrel to around $28 per barrel. And that threatens to push inflation in the eurozone into negative territory, below the current 0.2 percent annually – and far from the bank’s goal of just under 2 percent considered to be healthiest for the economy.
One reason to hold off Thursday is that the real economy where people produce and purchase goods is holding up fairly well. Indexes of consumer and business confidence are pointing up. Unemployment is creeping down, at 10.5 percent.
The open question is whether recently plunging stock markets or low oil prices will carry over from those markets to broader economic activity. The depth of China’s slowdown is another question mark to watch.
Central bank stimulus can have far-reaching effects on businesses, investors, savers and consumers. The ECB stimulus has meant a stronger dollar against the euro, adding a headwind for U.S. exporters to Europe. It has also slashed returns on savings in conservative investments such as bonds, insurance policies and bank accounts for people looking ahead to retirement.
Stimulus can, however, boost stocks by reducing returns on other investments such as bonds to zero or even below.
At its last meeting December 3, the governing council expanded an existing stimulus program based on 60 billion ($66 billion) in monthly purchases of government and low-risk private sector bonds by extending the purchases for another six months through March 2017. The purchases are made with newly created money, so they increase the amount of money in the financial system and in theory should boost inflation and also lending to support business.
The council also cut the interest rate on deposits at the central bank from commercial banks by 0.10 percentage points to negative 0.30 percent. The idea is to make banks pay for leaving money unused and push them to lend it instead.
That amount of news stimulus disappointed market participants who had expected more. A summary of the meeting released last week showed some members wanted more stimulus and others wanted none at all – divisions that Draghi will have to bridge to get the board broadly behind any new effort to help the economy with monetary policy.