[ad_1]
The European Central Bank will continue to buy bonds and keep interest rates deeply negative in an effort to pull the eurozone economy out of its persistent pattern of sluggish inflation, its policymakers decided Thursday.
The ECB has also said it is ready to tolerate a moderate and transitional overshoot of its inflation target, as it believes that a “persistent” policy is needed when rates are near the lowest point at which cuts are. effective – as is currently the case.
The forecast came two weeks after the ECB agreed to a new strategy that raised its inflation target to 2 percent, abandoned its promise to keep price increases below that level, and accepted that they can even exceed it temporarily. It was the first change in strategy in nearly two decades.
After the monetary policy meeting in Frankfurt, the central bank said in a statement that its revised guidelines “would underline its commitment to maintain an always accommodating monetary policy to achieve its inflation target.”
Eurozone government bond yields edged down after the announcement. Germany’s 10-year yield was 0.02 percentage point lower to minus 0.41%, while Italy’s 10-year yield fell a similar amount to 0.66%. The euro weakened slightly against the US dollar, to $ 1.1777.
Christine Lagarde, President of the ECB, said the euro area inflation outlook was “moderate” despite expectations of “strong growth” in the euro area economy in the third quarter. She added that the spread of the Delta coronavirus variant was “a growing source of uncertainty.”
There was still “some way to go before the fallout from the pandemic on inflation was wiped out,” she added, suggesting that the ECB would probably not cut back on bond purchases soon.
Lagarde acknowledged that there had been divisions within the board over direction, but that he had been backed by “an overwhelming majority” – in contrast to unanimous support for his new strategy.
Elga Bartsch, head of macro research at the BlackRock Investment Institute, said the ECB delivered a “conciliatory surprise” which is expected to be followed by an “upward adjustment” to its asset purchase plans later this year.
The ECB said its deposit rate would not increase by minus 0.5% until inflation hits 2% “well before the end of its projection horizon and sustainably for the remainder of the horizon. projection, and considers that the progress made in core inflation is sufficiently advanced to be compatible with a stabilization of inflation at 2% in the medium term ”.
He added: “It may also involve a transitional period in which inflation is slightly above target.”
The new wording sets a higher bar for interest rate hikes than previous forecasts.
However, inflation has been below the ECB’s previous target of “nearly 2% but below 2%” for almost a decade, and most investors remain skeptical about the bank’s likelihood of hitting its target. new goal.
“It was like old wine in a new bottle; communication has changed somewhat, but basically the ECB remains very accommodating, putting a ceiling on any weaker speculation, ”said Carsten Brzeski, head of macro research at ING.
Some ECB rate regulators have called for a reduction in the pace of bond purchases through the € 1.85 billion Pandemic Emergency Purchase Program (PEPP) it launched in response to the Covid-19 crisis last year.
But in its statement on Thursday, the ECB stuck to its forecast that the PEPP will last until at least March 2022 and will not end until its policymakers decide that “the coronavirus crisis phase is over. “.
The ECB is generally expected to decide in September to change the pace of PEPP purchases; in March, he raised them to € 80 billion per month after eurozone sovereign bond yields started to rise.
Some of the world’s other big central banks, like Canada and Australia, have already decided to slow the pace of their Covid-related stimulus programs. Others, like the US Federal Reserve, are still debating when to reduce it.
The ECB said its regular asset purchase program – amounting to € 20 billion per month – should continue “for as long as necessary to strengthen the accommodative impact of our key rates, and end. shortly before we start to raise the key interest rates of the ECB ”. .
Eurozone inflation has increased in recent months; in June, consumer prices were 1.9 percent higher than a year ago. The pace of price growth is expected to accelerate further in the second half of this year as the bloc’s economic recovery accelerates.
But the ECB expects inflation to fall back to 1.5% next year, prompting some rate regulators to say it should expand its bond buying plans.
Gurpreet Gill, strategist at Goldman Sachs Asset Management, said: “We expect the ECB to maintain its ‘low status’ status quo for the foreseeable future, with rate hikes unlikely to be in order. of the day of politics before the second half of this decade. as soon as possible.”
In a survey of around 250 German financiers and economists earlier this month, the Center for Financial Studies in Frankfurt found that eight in ten thought it would be “increasingly difficult to deviate from politics low interest rates from the ECB as governments become increasingly dependent on purchases. of their obligations ”.
Additional reporting by Tommy Stubbington in London
[ad_2]
Source link