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The Council of the European Central Bank (ECB) has its Monetary policy left unchanged as expected. According to the ECB, the key interest rate will remain at historical zero.
According to the ECB, key interest rates, as well as security buying programs and the future direction related to them, will remain constant. The main financing rate is 0.00 percent, the marginal lending rate 0.25 percent, and the bank deposit rate minus 0.50 percent.
The Governing Council expects key interest rates to remain at their current level or lower until it determines that the inflation outlook in its projection horizon is approaching a level reasonably close to, but below 2 percent. hundred. This approximation should also be reflected consistently in the dynamics of core inflation.
Net purchases of unchanged bonds
Net purchases of bonds under the APP program amount to 20,000 million euros per month plus 120,000 million euros at the end of the year, which the City Council had decided in March. The Governing Council expects these net purchases to continue as long as necessary to reinforce the accommodative effect of key rates. Purchases are only supposed to end shortly before the first rate hike.
The redemption amounts of the securities acquired under the APP will be fully reinvested over a longer period of time, beyond the point in time when the Governing Council begins to raise the key interest rate. In any case, this reinvestment will be carried out for as long as is necessary to maintain favorable liquidity conditions and ample monetary accommodation.
Purchases under the PEPP pandemic purchasing program have a volume of 1.35 billion euros and will last until at least mid-2021, but in any case until the ECB Council decides that the crisis phase of the crown has finished. The redemption amounts of maturing bonds will be fully reinvested until at least the end of 2022.
In its statement, the ECB also stated that it would continue to provide ample liquidity through refinancing operations. He referred to the heavy use of the latest TLTRO3 long-term tender.
Keep an eye on the inflation target
The ECB is also willing to adjust all its instruments as necessary to ensure that inflation is permanently close to the target range. The Council reaffirmed the symmetry of its inflation target.
EZB-President Christine Lagarde will explain the results of the meeting at a press conference starting at 2.30 pm. Analysts expect Lagarde, among other things, to comment on the ongoing review of monetary policy strategy and the results of the corresponding review by the US Federal Reserve. Questions are also expected about the impact of the strong euro on the ECB’s monetary policy.
Lagarde: the Governing Council discussed the appreciation of the euro
The European Central Bank (ECB) will pay due attention to the recent appreciation of the euro, according to President Christine Lagarde. “The council discussed the appreciation of the euro,” Lagarde said at the press conference after the last council meeting. The euro exchange rate is not an objective of monetary policy.
The Council’s monetary policy statement, which Lagarde read, said on the matter: “In the current environment of heightened uncertainty, the Council will closely examine incoming information, including exchange rate developments and their implications for the inflation outlook. medium term “.
The ECB is somewhat less pessimistic about the economy
The European Central Bank (ECB) is no longer so pessimistic about the economic outlook for the euro area. This year, the economic output of the 19 euro countries is likely to contract dramatically by 8.0 percent due to the crown crisis, as the central bank announced in Frankfurt on Thursday. The decline is forecast slightly less forcefully than three months ago. In June, the ECB expected the economy to contract 8.7 percent.
In exchange for the increased projection, the expected economic recovery was slightly reduced in the next year from 5.2 to 5.0 percent. By 2022, the ECB expects growth of 3.2 percent after the previous 3.3 percent. The central bank left its inflation forecast virtually unchanged. Only slightly higher inflation is forecast for next year. Until 2022 inclusive, inflation is well below the ECB’s medium-term target of just under two percent.
ECB forecasts are prepared by staff and serve as decision-making aid for the Governing Council.
Survey result: interest rates will remain low in late 2021
According to economists, the European Central Bank (ECB) will keep its ultra-low interest rates until at least the end of 2021.
According to a survey by the Reuters news agency, the 71 economists who responded to a question expect the key interest rate to remain at 0.0 percent in the fourth quarter of 2021. The ECB has held it at this level since March 2016 A large majority also expect the so-called deposit rate to remain at minus 0.5 percent in the last quarter of 2021. A minus sign means that institutions have to pay interest if they deposit excess funds with the central bank. The ECB had lowered the deposit rate below zero percent for the first time in 2014.
Euro in sight
In the survey, an additional question was asked about the current strength of the euro. According to this, economists see the median of their 31 responses as the pain threshold for the ECB at 1.25 euros. The common currency has gained about nine percent against the dollar since mid-May. The increase is inconvenient for the ECB, as the euro economy is slowly recovering from the severe crisis in which it was trapped by the corona pandemic. Because with the increase in prices, the products of the euro zone tend to become more expensive on the world market. That gnaws at your competitiveness.
Reuters polled economists between September 7-9.
Finanzen.net / Reuters / Dow Jones Editorial Team
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