Europe's stimulus likely to keep running as economies reopen

FRANKFURT, Germany (AP) — The European Central Bank is expected to leave its stimulus efforts running at full steam Thursday — even as the economy shows signs of recovery as pandemic restrictions ease.

And that could present a challenge for ECB head Christine Lagarde. She faces a balancing act: acknowledging improving economic data without triggering a premature market reaction that anticipates the eventual reduction in central bank support for the economy.

Any talk of a stimulus taper could mean higher borrowing costs for companies — the last thing the ECB wants right now.

“Even if economic developments would in our view clearly justify at least having a first tapering discussion, the sheer mention of such a discussion could push up bond yields further and consequently undermine the economic recovery before it has actually started," said Carsten Brzeski, global head of macro at ING bank.

The central bank for the 19 countries that use the shared euro currency has been purchasing around 85 billion euros per month in government and corporate bonds as part of a 1.85 trillion euro ($2.25 trillion) effort slated to run at least through early next year. The purchases drive up the prices of bonds and drives down their interest yields, since price and yield move in opposite directions. That influences longer-term borrowing costs throughout the economy, sending them lower.

That's exactly what the bank wants at a time when many companies are struggling with reduced demand and higher debt and need to keep credit lines open so they can get to the other side of the pandemic.

Any hint, however, that the ECB is thinking about tapering the purchases could send market rates higher earlier than the central bankers would like. That's why any discussion could be postponed until the...