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ECB Is Ready to Expand Stimulus Program, Minutes Show -- Update

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05/22/2020 | 09:31am EDT

By Tom Fairless

FRANKFURT -- European Central Bank officials are ready to step up bond purchases next month if they consider such a move necessary to combat the economic fallout from the coronavirus pandemic, according to the minutes of their April policy meeting.

The ECB in March unveiled a EUR750 billion ($820 billion) bond-buying program to support governments and businesses in the face of plunging economic growth. But the bank surprised some analysts by leaving the program's size unchanged at its April 29-30 meeting, while sweetening the terms of loans to eurozone banks.

The minutes of the April meeting, published Friday, suggest the ECB is ready to expand the new bond-buying program at its June 4 meeting, which would help eurozone governments finance the battle against the virus, if new data suggests the current stimulus is too small.

"Past experience showed that a loss of confidence in financial markets had to be avoided and pre-emptive action was preferable," the minutes said.

The ECB is trying to keep the borrowing costs of eurozone governments in check, but officials noted that some have crept up since mid-March, as government revenues have fallen and costly programs to combat the pandemic have been rolled out.

The report suggests that ECB officials are willing to act aggressively, even as they weigh the legal implications of the bank's bond purchases.

Germany's top court raised questions about the ECB's easy-money policies this month, with a ruling that approved an earlier bond-buying program while demanding greater clarity about its economic impact.

At the bank's April meeting, one ECB official warned that the purchases of sovereign debt "had to be executed carefully in order not to encourage irresponsible behavior on the part of governments."

But other officials said that wasn't a reason for the ECB to stop buying debt, and thereby to pursue its mandate of keeping inflation close to 2%.

To ensure that the ECB adhered to its mandate, the bank should keep its inflation target "to the fore," while monitoring government debt issuance and deficits, the minutes said.

Earlier Friday, Germany's central bank published a positive report on the economic impact of the ECB's bond purchases.

The report, published Friday on the Bundesbank's website and written by two staffers, found that the ECB's earlier EUR2.7 trillion asset-purchase program had boosted economic output, bank lending and inflation in the four largest eurozone economies.

Bundesbank officials have long expressed skepticism about the ECB's bond purchases, which have been criticized in Germany for supposedly hurting savers and subsidizing Southern European governments.

Write to Tom Fairless at tom.fairless@wsj.com


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