ECB keeps stimulus high, ruling out immediate cut

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The headquarters of the European Central Bank in Frankfurt am Main, Germany

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The European Central Bank on Thursday decided to continue buying bonds in the market at “a significantly higher rate” than in the first months of the year, confirming market expectations that it is not on the market. point to “scale back” its pandemic-specific quantitative easing program anytime soon.

The decision taken at the ECB’s Governing Council meeting came even as central banks raised their growth and inflation forecasts for the euro area.

It now sees real gross domestic product increase by 4.6% this year (0.6% percentage point more than three months ago), 4.7% in 2022 (up by the same amount) and 2.1% in 2023 (unchanged from March forecast).

Inflation is also expected to accelerate at a much higher rate than at the time, forecast at 1.9% this year (up from 1.5% in March), 1.5% in 2022 and 1.4% in 2023.

This year would then mark the first year since 2012, when the ECB would have reached its official inflation target “below but close to 2%”, which it has consistently exceeded for the past eight years.

But ECB President Christine Lagarde insisted at a press conference after the Governing Council meeting that the causes that led to a rise in inflation – namely the rapid rise in gas prices. energy compared to last year and the current production bottlenecks in world trade – would likely not last.

The pressures on prices remain “generally moderate”, she noted, with the continued slowdown of European economies and the strong level of the euro, which keeps the prices of imported goods at a low level.

Lagarde, however, insisted that core inflation (excluding food and energy) was starting to strengthen and that the gradual removal of spared capacity, coupled with the continuation of monetary stimulus measures next year, would help the ECB to achieve its medium-term inflation target.

The central bank kept its key rate unchanged at minus 0.5%, a move also widely expected by the markets.

The ECB reiterated in its declaration that it intends to retain all the “flexibility” necessary to adapt its “accommodative monetary policy” according to needs.

Even though the “pandemic emergency purchase program” is due to end in March next year, the central bank reaffirmed on Thursday that it can adjust both the amount and the timeframe to deal with the economic developments in the coming months.

He could end up buying less than the € 1.85 trillion cap set for the quantitative easing program – or more. And notwithstanding the March 2022 deadline, the ECB will in any case continue to purchase assets “until it deems the coronavirus crisis phase to be over,” she said, reiterating the commitment of every meeting since she launched the program in March of last year.

The ECB president declined to be involved in a discussion about what kind of stimulus the central bank was considering after the PEPP ended, saying such a debate was “premature”.

the euro was flat on the news at $ 1.22 in European mid-day trading.

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