FRANKFURT: The European Central Bank looks set to keep its monetary policy gunpowder dry when its decision-making governing council convenes next week, despite the recent turmoil that has engulfed global markets, analysts said.

It has been a chaotic week for stock markets around the world, spooked by fears of economic slowdown in China.

Share prices have wildly seesawed, but trading received a lift later in the week from comments by US Federal Reserve officials, who said the current turmoil had weakened the case for a US interest rate rise in September.

The ECB, for its part, is unlikely to be panicked into any knee-jerk policy moves, particularly since its radical asset purchase program known as quantitative easing, or QE, finally appears to be bearing fruit, central bank watchers said.

QE is an ambitious scheme, launched in March, to buy more than one trillion euros ($1.1 trillion) worth of public sector bonds to pump liquidity into the system.

The program is indeed helping to get credit flowing again and pushing up the rate of inflation in the 19 countries that share the euro, new data suggest.

Hence, “in the short run, the ECB should not adapt its QE policy. This (would) only add to the turmoil,” said Merijn Knibbe of Wageningen University in the Netherlands.

There is no reason for the ECB to start phasing out its ultra-loose monetary policy, where interest rates have been held at all-time lows since September 2014, the expert said.

Even Germany, Europe’s biggest economy, where growth is picking up with confidence on the rise and its public finances firmly in the black, was showing no real signs of overheating, Knibbe said.

But Natixis economist Sylvain Broyer believes that the QE program might have to be extended beyond the original planned date of September 2016.

In the current market turbulence, the euro was seen as a safe haven by investors, pushing market interest rates down and causing consumer price inflation to undershoot the central bank’s target.

Such factors “will provide the ECB ample excuse to extend its QE program beyond September 2016. But let us be clear: even without such turbulences, the ECB would have had to extend its QE program, since core inflation will remain far below price stability for structural reasons,” Broyer said.

Source: arabnews.com