William Malcolm

ECB Holds Policy Unchanged

The European Central Bank (ECB) left its monetary policy unchanged today, as expected, despite rising inflation in the eurozone. The ECB’s key interest rate thus remains at a record low of zero percent. The bank will also continue to buy bonds this quarter, but at a “slightly slower” pace than in the previous two quarters, Reuters reported.

“The Governing Council continues to believe that favorable financing conditions can be maintained even with a slightly lower volume of net asset purchases,” the ECB said in a press release. She added that the Governing Council had also confirmed its other measures, including setting interest rates. According to her, the markets expect an increase in interest rates sooner than the ECB expects.

At a press conference, ECB chief Christine Lagarde later identified higher energy prices, a global mismatch between boosting demand and supply, and one-off changes such as the end of Germany’s VAT cut as the three main factors affecting inflation in the eurozone.

“Although the decline in inflation will last longer than originally expected, we expect these factors to moderate over the next year. (…) We continue to see inflation below our 2% target in the medium term,” Lagarde said.

The ECB chief said that the Pandemic Emergency Purchase Program (PEPP), which the ECB had gradually increased to € 1.85 billion (CZK 47.6 billion), would end in March. “At the moment, I expect the PEPP to end in March, whether we use all the funds or not, it remains to be seen,” she said.

“The eurozone continues to recover strongly, although the momentum has slowed to some extent. Consumers maintain confidence in the economy and their spending remains high. However, in some sectors, shortages of materials, equipment and labor are hampering production,” Lagarde said.

Through its loose monetary policy, the ECB seeks to support the recovery of the euro area economy from the downturn caused by the covidu-19 pandemic. Recently, however, they have been under pressure to tighten policies due to accelerating consumer price inflation.

Year-on-year inflation in the euro area rose to 3.4 percent in September from three percent in August. “We expect it to rise further this year. Although the current phase of higher inflation will last longer than originally expected, we expect inflation to fall over the next year,” Lagarde commented.

On Friday, the European statistical office Eurostat will publish a quick estimate of October’s development of consumer prices.