FRANKFURT, March 10 The European Central Bank is
preparing the ground for a gradual phasing out of its aggressive
stimulus measures, resisting isolated calls for more radical
action from some policymakers, two sources familiar with the
discussion said on Friday.
Some members of the ECB's Governing Council had raised the
possibility at this week's policy meeting of raising interest
rates even before bond purchases end, the sources said,
confirming a Bloomberg report. The discussion was brief,
however, and did not receive broad support, they added.
Euro zone inflation is rebounding but the economic outlook
remains uncertain and marred by high-risk elections in France
and Germany. That has left the ECB walking a tight rope between
priming the market for an eventual tightening and withdrawing
its safety net for the economy too soon.
Against this backdrop, the ECB is likely to stick to
fine-tuning its message for the next few months and refrain from
any major policy shift before the French elections in May and
possibly the German vote in September, the sources said.
ECB President Mario Draghi reaffirmed on Thursday that the
euro zone's central bank would first stop adding to its 2.3
trillion euro bond-buying programme and only afterwards consider
any increase in its interest rates.
A rate hike would chiefly mean lowering a penalty charge
that banks must pay for parking cash securely with the ECB
This extreme measure was introduced in 2014 to discourage
cash hoarding and kick-start lending. It has since cost banks
billions of euros, partly because of the growing amount of
excess cash injected into the banking system by the ECB itself
via its asset purchases.
Lending is now picking up, albeit slowly, and the damage
associated with negative rates has become apparent to the ECB
itself, which is also the euro zone's top bank supervisor.
Some ECB rate-setters, including Jens Weidmann, head of
Germany's powerful Bundesbank, have called for the institution
to at least consider ruling out any further rate cuts.
Financial markets are now fully pricing in a rate hike next
year and some economists expect one even before then.
"From June on we may see some changes, such as an increase
in the deposit rate," Berenberg economist Florian Hense said.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa and