Thursday, December 9

The ECB keeps its arsenal deployed despite escalating inflation

Christine Lagarde.

No surprises despite the strong increase in inflation. The governing council of Banco Central European (ECB) has decided this Thursday to maintain the entire arsenal of measures deployed to combat the economic effects of the pandemic. It was what was expected because the monetary authority has been insisting for months that the rise in prices is transitory, but the market’s eyes are on the messages that its president, Christine Lagarde, can launch at the press conference that she will offer at noon.

The interest rates reference, thus, will continue in the minimum levels historical records in which they have been installed since March 2016 (the official price of money at 0%, the interest that the ECB charges banks for lending them at 0.25%, and the interest it charges them for keeping their money at 0%). ,5%). The emergency shopping program against the pandemic (PEPP), which will maintain its total endowment of 1.85 billion euros and it will remain in force “at least until the end of March 2022 and, in any case, until it considers that the coronavirus crisis phase has ended”, as well as the asset purchase program (APP), launched long before the arrival of the coronavirus, will continue at a monthly rate of 20,000 million euros.

This Thursday’s meeting, in any case, was perceived as of Transition by analysts. At its meeting in early September, the ECB’s council already met in December to discuss and communicate its new plans, since then it will have an update of its inflation forecasts (currently at 1.9% for this year , 1.5% for the next and 1.4% for 2023) and GDP (4.6% this year, 4.7% next and 2.1% in 2023) of the euro zone. Given the evolution of the economy and prices, the market thinks it is likely that it will then decide terminate or reduce the PEPP and that, in return, take other steps, such as making new injections of cheap liquidity into banks and increasing the APP, launched long before the arrival of the coronavirus.


The council already decided in that September meeting (and confirmed this Thursday) slightly soften its support in the economy for the first time in the pandemic. Thus, it approved that the rate of debt purchases of the pandemic program would be between October and December “slightly lower than in the two previous quarters.” This program, launched in March last year, seeks to compress the differences between the risk premiums (risk of default in the eyes of the market) and thus reduce overall financing costs in euro economies. Last March, monthly acquisitions rose to 80,000 million due to the tensions detected in some markets.

What is not predictable is a close rise in rates of official interest. At the end of September, Lagarde assured that the ECB expects inflation to “slowly converge towards 2%” (that is, at the monetary authority’s target level). Even more significantly, he highlighted that private analysts consulted by the monetary authority foresee that inflation “will rise to 2% and stabilize at that level only within five years.” If so, the ECB would not raise rates until about 18 months before the point in 2026 when prices converge with its medium-term objective, according to its new strategy approved before the summer. It would be the first hike since July 2011.

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