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ECB stimulus is working, council members say before meeting

The European Central Bank on Thursday left its key interest rates unchanged at its first policy meeting of the year, despite current volatility on the world's financial markets owing to concerns about the slowing Chinese economy.

[BUDAPEST] The European Central Bank's quantitative easing program is working out for the euro area, and the main signals that may lead to future adjustments will be inflationary expectations, Lithuanian Governing Council member Vitas Vasiliauskas said.

Vasiliauskas's comments echoed those of fellow Governing Council member Ewald Nowotny, who said the monetary authority's unconventional measures were working and core inflation was "more in equilibrium" than oil-driven headline price growth.

"The ECB's quantitative easing is working, and it has made a positive influence on gross domestic product growth," Vasiliauskas said at a conference sponsored by Euromoney in Vienna on Wednesday.

"With regards to GDP, it means more exports for the eurozone. So I think the effect of the ECB asset- purchase program is positive for all the eurozone." 

After expanding their monetary-policy stimulus program last month, ECB policy makers will refrain from new measures at a meeting on Thursday, according to economists in a Bloomberg survey. While the minutes of the governing council's Dec 3 meeting, where the board cut the deposit rate and extended bond purchases until at least March 2017, showed a minority were willing to pursue more stimulus, they faced resistance from their colleagues.

Vasiliauskas declined to comment specifically on monetary policy before Thursday's meeting. When asked, however, what kind of signals policy makers may be watching for to wind down the bank's unconventional measures, he pointed to price-growth expectations.

"Inflation expectations for the future is the main thing when thinking about the asset purchase program," he said. "The program is making and will make a positive impact. So let's wait, because we have a lot of, I would say, international factors which are also very important for the eurozone's monetary policy in the future."

Nowotny, the head of Austria's central bank, agreed that even though euro-area inflation was being influenced mainly by outside developments, the quantitative easing policies were having the desired effect.

"If we look at the unconventional policies that we have done, they are working," Nowotny said at the conference. "We have now much closer and much more integrated capital markets and financing structures in Europe, which is a good thing."

Looking at core inflation, which strips out energy prices that have been undercut by oil's plunge to around $30 a barrel, is also becoming important "not as an alternative but as another point of the discussion," Nowotny said.

Zero inflation "is to large extent due to special circumstances concerning the oil price. That is something that's really extraordinary, that we had this huge fall of the oil price to around $30, and that of course has an effect on the inflation rate," he said. In core inflation, "of course things are much more in equilibrium if you adjust for the oil price effect."

Nowotny also said the beginning of US interest-rate increases had "worked rather smoothly" and said turbulence in China's stock market was "more a psychological phenomenon, maybe a political phenomenon, but not one of deeper economic impact."