ECB reaffirms that inflation only temporary
The European Central Bank (ECB) confirmed on Thursday that it would be keeping interest rates at the same level, as well as keeping its bond buying programme the same.
The ECB’s interest rate of 0% remained unchanged, while its deposit rate for banks remained at -0.5%. The pandemic emergency purchase programme (PEPP) stayed at the same level of £1.6trn, as the asset purchase programme remained at €20bn.
Investors will remain curious as to how long the ECB will maintain its monetary stimulus.
“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics,” the ECB said in a statement.
Data has revealed that inflation in the eurozone has surpassed the block’s target of close to but below 2%.
The ECB said in the past that it expected prices to rise this year, but said the move was only temporary.
Economists anticipated that zero changes would be made, despite the rising levels of inflation.
During May, inflation touched 2%, the level of the central bank’s target, however it stoked concerns that prices could go above acceptable levels.
Commenting on the ECB Monetary Policy Statement and maintaining a dovish tone, Jesus Cabra Guisasola, Associate at Validus Risk Management, said: “As most market participants expected, the ECB maintained its dovish tone and decided to leave its ultra-loose policy unchanged by keeping the current PEPP purchases at the fastest pace for the third quarter of 2021.”
“While there are clear signals of optimism around the European economy, after a pickup in vaccinations and falling coronavirus cases. There are still uncertainties surrounding the euro-area and its recovery.”
“The pandemic is leaving a legacy of high debt and weak balance sheets with an uneven recovery between southern and northern European economies. Hence, the ECB prefers to continue with its wait-and-see monetary policy stance and not disrupt the funding market in the short-term.”
“An environment where the European economy recovers at different paces with inflation below the 2% target, could lead to a weaker euro. Nevertheless, there is a market consensus for a weaker dollar in the coming months and we could see EURUSD testing 1.25, a level not seen since early 2018.”
