The ECB leaves key interest rates unchanged and revises its forecasts


Photo taken on June 10, 2021 shows European Central Bank (ECB) President Christine Lagarde during a live broadcast of a press conference following the ECB Governing Council meeting held at the ECB headquarters in Frankfurt, Germany. (Xinhua / Lu Yang)

According to the latest rulings, key euro area interest rates will remain at record highs, with the base interest rate, marginal lending rate and deposit rate unchanged at 0.00%, 0.25 % and minus 0.50%, respectively.

FRANKFURT, July 22 (Xinhua) – The European Central Bank (ECB) on Thursday announced it had decided to leave key interest rates unchanged and revised its forecast based on the new symmetrical inflation target of 2% .

The ECB Governing Council “expects the ECB’s key interest rates to stay at or below current levels until it sees inflation hit 2% well before the end of its term. projection horizon and durably for the remainder of the projection horizon, ”the central bank said. in a report.

“It may also involve a transitional period during which inflation is slightly above target,” he added.

Earlier this month, the ECB approved a new monetary policy strategy that adopts the target of symmetrical inflation of 2% over the medium term, following an 18-month strategic review. The previous diction was “less than, but close to” 2 percent.

The ECB said on Thursday that the forward guidance adjustment was aimed “at underscoring its commitment to maintain an always accommodating monetary policy to meet its inflation target.”

According to the latest rulings, key euro area interest rates will remain at record highs, with the base interest rate, marginal lending rate and deposit rate unchanged at 0.00%, 0.25 % and minus 0.50%, respectively.

The ECB has also decided to keep the stimulus measures unchanged, saying it continues to expect purchases under the emergency pandemic purchasing program in the current quarter to proceed. at a much higher rate than during the first months of the year.

During the press conference, ECB President Christine Lagarde stressed that “patience to gain confidence” was the message embedded in the new direction of interest rates.

“I wouldn’t say it’s lower any longer,” said Lagarde, “I would say it’s an indication that neither of us would want to tighten prematurely.”

Lagarde noted that the eurozone recovery is “on track” but that the Delta variant “constitutes a growing source of uncertainty”. The Delta variant could hamper the recovery of services, especially in tourism and hospitality, Lagarde added.

Regarding the price increase, Lagarde reiterated that the increase should be mainly temporary and that the medium-term inflation outlook remains moderate.

Headline inflation in the euro area was 1.9% in June, down slightly from 2% in May. The market almost agreed that inflation will rise further in the coming months.

In a report released this week, the Bundesbank, Germany’s central bank, said it expects a return to significantly higher inflation rates, with inflation potentially temporarily exceeding the 4% mark by now. the end of the year, in part because of the base effects of last year’s VAT. reduction.

Friedrich Heinemann, economist at the Leibniz Center for European Economic Research in Mannheim, Germany, said that with its latest decisions “the ECB is immunizing its negative interest rates and bond purchases against a surprisingly sharp rise in inflation for a long time”.

“While the risks of further waves of infection are obviously carefully considered, there is little interest in the unmistakable signals that parts of the economy are starting to overheat,” Heinemann said in an online memo. Heinemann expected zero and negative ECB interest rates to be in place until at least 2023.

A woman walks past summer sale posters in front of the Galerie Lafayette department store in Paris, France, June 30, 2021 (Xinhua / Gao Jing)

According to the ECB’s macroeconomic projections in June, annual inflation in the euro area is expected to stand at 1.9% in 2021, 1.5% in 2022 and 1.4% in 2023, which remains below the 2% target.

“The ECB deserves kudos for the necessary changes in forward guidance. But maintaining the current policy parameters any longer will not solve the ECB’s chronic underestimates of inflation forecasts, unlike the Fed,” Robin Brooks , chief economist of the Washington-based business group the Institute of International Finance, tweeted.

“We need more monetary stimulus from the ECB. We need action, not words,” he added. â– 

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