Following the first European Central Bank (ECB) meeting of 2021, the institution announced that it will be sticking to its current key rates and the scale of its Pandemic Emergency Purchase Programme (PEPP) for the foreseeable future, as the European economy continues to grapple with the impact of the Covid-19 pandemic.
In what The Telegraph described as a “pretty boring” press conference from Christine Lagarde, the ECB President confirmed that the bank will stick to its 0% interest rates until inflation at least “robustly converges” to the target of around 2%.
She warned, however, that upward pressure on inflation will take some time to emerge and is highly dependent on the progress of the Europe-wide vaccination programmes in tackling infection rates.
Lagarde emphasised that uncertainty remains very high, and the ECB will refrain from any significant changes while the economic landscape is still so murky.
She confirmed that the ECB’s near-term forecasts were supported by the newest data, stating: “Overall, the incoming data confirm our previous baseline assessment of pronounced near term impact on economy and protracted weakness in inflation”.
The ECB added in a statement: “The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves toward its aim in a sustained manner, in line with its commitment to symmetry”.
Meanwhile, the ECB’s asset-purchasing PEPP project will remain at €1.85 trillion. The Governing Council commented: “If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not to be used in full”.
Crucially, it added: “Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation”.
Lagarde also said that the ECB’s Governing Council is continuing to monitor the euro exchange rates, echoing concerns raised in the bank’s last meeting in December. Policymakers appear to still be worried about the strength of the single currency. The GDP/EU rate is currently sitting at 1:1.13 as of GMT 14:57.
Reactions from market analysts are beginning to flow in, with global macro strategist Frederik Ducrozet stating simply:
Others, namely Danske Bank’s chief strategist, picked up on the ECB’s interesting choice of wording in their economic forecast:
Also commenting on the ECB’s announcement was Chris Beauchamp, Chief Market Analyst at IG, who weighed in:
“While the euro has weakened against the dollar from its highs earlier in the month, the overall direction of travel remains unchanged.
“The ECB had previously been keen to downplay any concerns about the strength of the euro, but if reduced stimulus expectations in the US take the heat out of the dollar bounce, then policymakers in Frankfurt might have to start worrying again about the euro’s rise”.