European Central Bank raises forecasts as it prepares to start bond-buying stimulus program



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NICOSIA, Cyprus — The struggling eurozone economy is picking up momentum ahead of the launch next week of a 1.1 trillion euro ($1.2 trillion) stimulus program, European Central Bank head Mario Draghi said Thursday.

The central bank for the 19-country eurozone raised its growth forecast for this year to 1.5 percent from 1.0 percent amid signs credit is flowing more easily to businesses.

"Looking ahead, we expect the economic recovery to broaden and strengthen," Draghi told reporters after the bank kept its key interest rate on hold at its monthly meeting.

He said the ECB had set Monday as the start date for its 1.1 trillion euro bond-buying program that aims to stimulate the recovery and raise the rate of inflation from a dangerously low of minus 0.3 percent.

Draghi cautioned that the recovery was "likely to be dampened" by some eurozone governments' efforts to reduce debt and by slow progress in making pro-growth reforms.

The currency union's economy grew 0.3 percent in the last three months of 2014 from the quarter before. Unemployment has started to fall but remains high at 11.2 percent.

Draghi confirmed the ECB will buy the full proposed amount of 60 billion euros ($67 billion) per month in government and corporate bonds. The bank has said it will keep buying until September next year, and in any case until inflation shows sustained improvement from levels considered dangerously low.

The purchases, using newly printed money, are aimed at driving down market interest rates and increasing inflation. European bond market interest rates have fallen in anticipation, to the point where some government bonds carry slightly negative rates — meaning buyers pay for the privilege of lending money.

Economists say the economy is showing signs of life in part due to increased confidence based on hopes for the stimulus program. Lower oil prices that leave consumers more money for other purchases are helping. So is a weaker euro, which helps exporters.

"The pressure on Draghi and Co. has eased somewhat in recent months," said Dennis de Jong, managing director at brokerage UFX.com. "There is a real chance that the economies of Europe may have turned the corner — and all before the bond buying commences on 9 March."

The euro traded near an 11-year low against the dollar, at $1.1021 by midafternoon in Europe, after the end of Draghi's news conference.

Draghi underlined the central bank's commitment to support Greece, but within the ECB's rules. Greece is trying to find a way to win more bailout loans from the other eurozone countries, and has four months to submit a convincing plan to turn its economy and finances around.

Draghi said the ECB "stood ready" to once again permit Greek banks to use junk-rated Greek government bonds as collateral to get credit from the ECB. That would happen as soon as the bank assesses that Greece is likely to successfully complete a creditor review of its progress.

Inability to use the bonds as collateral has forced the banks to rely on more expensive emergency credit from the Greek central bank.

The ECB held its meeting in Nicosia, the capital of the Mediterranean island state of Cyprus, one of two meetings per year it holds away from its headquarters in Frankfurt, Germany.


McHugh reported from Frankfurt, Germany. Pan Pylas in London contributed to this report.

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