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ECB Policy Makers Repeat Rate Pledge as Meeting Looms

Two European Central Bank Executive Board members acknowledged that the euro area’s economy is recovering and repeated a pledge ahead of a policy meeting next week that the central bank will keep interest rates low.

“We said that our monetary policy stance will remain expansionary for as long as needed,” Joerg Asmussen said in a speech in Dautphetal-Buchenau, Germany. “Second-quarter data confirm our baseline scenario. Our interest rates will remain at the present or lower level for a longer period of time.”

Policy makers will convene for their monthly policy-setting meeting on Sept. 5, when ECB President Mario Draghi will present new growth and inflation forecasts and provide an update on the bank’s unprecedented pledge to keep rates low. The 17-nation euro economy grew 0.3 percent in the three months through June, ending its longest-ever recession.

“Next week is the Governing Council with a potential monetary-policy decision,” Asmussen said. “I say potential. The ECB president will then explain if there was something to decide or not.”

The Frankfurt-based ECB introduced forward guidance on rates in July, as the prospect that the U.S. would tighten monetary policy prompted financial markets to price in higher borrowing costs. With the euro area’s economy now growing after six quarters of contraction, policy makers are trying to prevent rising market rates from choking the recovery.

Price Stability

Euro-area activity has stabilized at low levels, Executive Board member Benoit Coeure said today in Gothenburg, Sweden.

“The ECB will raise rates when risks to medium-term price stability materialize,” he said. “But -- and it’s an important but -- the Governing Council doesn’t expect that to happen for an extended period of time. Where I see a challenge is not at the ECB level, but the ability of the financial system in the euro area to withstand higher interest rates.”

The euro area is still struggling with “high and rising unemployment,” Asmussen said. “One in four young people is without a job. That’s unacceptable.”

He also said that Germany’s economy is poised to slow. While the economy is “without doubt in robust shape,” growth in the third quarter will be “somewhat weaker” than in the previous one, he said. Europe’s largest economy expanded 0.7 percent in the three months through June, driven by private consumption and a rebound in investment activity.

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