William Malcolm

ECB Promises Even Longer Support For Euro Zone Economy

The European Central Bank (ECB) has introduced a new approach to monetary policy, which suggests longer support for the eurozone economy. The key ECB interest rates will remain at record lows even longer, so that inflation in the euro area will rise to two percent and remain there over the medium term. The ECB said this after today’s meeting of the Governing Council.

The main interest rate remains at a record low of zero percent. Asset purchase programs also remained unchanged. The emergency pandemic program, called PEPP, currently has 1.85 trillion euros (47.5 trillion CZK) available and is expected to be in force at least until March 2022.

At a press conference, ECB President Christine Lagarde emphasized the central bank’s determination to pursue a supportive policy. She said the recovery was “on the right track”, but said the more contagious variant of coronavirus delta continued to cast a shadow over it, especially warning of the potential impact on tourism and hospitality.

Lagarde also commented on inflation, which fell to 1.9 percent in the eurozone in June from two percent in May. “Our monetary policy measures, including our revised strategy, will help the economy move to a solid recovery and ultimately bring inflation back to our 2% target.” most “.

In a review of its monetary strategy published this month, the ECB raised its medium-term inflation target to two percent. The target is symmetrical, which means that deviations downwards and upwards from the target are equally undesirable. So far, the bank has set an inflation target just below two percent, which was misleading, according to some analysts.

Today, the ECB said it would not raise interest rates until it saw that inflation had reached its 2% target well in advance of the end of its projection horizon and would remain there. The ECB previously stated that it would keep interest rates at current levels until it is satisfied that inflation expectations are approaching its target, and will shortly end bond purchases under its quantitative easing program.

In the last decade, inflation in the euro area has remained largely below two percent. Since the covid-19 pandemic, it has moved significantly below the target.

The central bank’s report pushes expectations of the first increase in interest rates in the euro area from 2011 onwards into the future. The ECB estimates that inflation will not reach the 2% mark in at least the next two years. According to the bank’s estimates, inflation will rise to 1.9 percent this year, but expects it to fall to 1.5 percent next year and to 1.4 percent next year.

Financial markets have not expected to raise interest rates for at least three years, Reuters reported.