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European Central Bank officials worry about global turmoil

by Associated Press

FRANKFURT Feb 19, 2016 - 12:00 am GMT+3
by Associated Press Feb 19, 2016 12:00 am
Top officials from the European Central Bank expressed concern at their last meeting about turbulent financial markets and the increasingly dim outlook for China and other emerging economies.

Members of the bank's 25-member governing council also debated whether current low levels of inflation in Europe could become chronic by being ingrained in wage and price agreements.

The concerns expressed in the summary of the Jan. 21 meeting could push the council to add to its current stimulus measures when it next meets to review policy on March 10. Europe's economy is recovering slowly with stronger domestic demand, but faces risks from a slowdown in global trade that could hurt exports.

The central bank could increase the size of its 60 billion euros ($67 billion) in monthly bond purchases, a step which drives down already low borrowing costs and pumps newly printed money into the economy. The ECB could also cut the rate on deposits that commercial banks store with the central bank even farther into negative territory, from minus 0.3 percent. The negative rate is an unconventional step aimed at pushing banks to lend the money rather than hoard it.

In the summary, ECB members expressed concern that "global economic growth and global trade growth were decelerating in a context of heightened volatility in global financial and commodity markets and weaker global confidence.

They also debated whether current low inflation only 0.4 percent annually was working its way into the setting of wages and prices by businesses and workers. That would make it even harder for the ECB to reach its goal of pushing inflation up toward its goal of just under 2 percent, and would be another reason to enact more stimulus. Just under 2 percent is considered healthiest for the economy.

In that context, members noted weaker than expected wage growth.
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