The ECB maintains its monetary arsenal despite inflation risks to ensure recovery

Monthly meeting in Frankfurt

The only novelty is that it will extend its high rate of asset purchases within the Pandemic Program until the third quarter of the year.

ECB President Christine Lagarde in a file image.

Ensure recovery without losing sight of inflation. This is the slogan that moves the European Central Bank (ECB) on the threshold of the second summer of the pandemic, with the incipient reopening of the Eurozone economies and with an increase in prices that, from its point of view, is something temporary and responds to temporary elements.

With this scheme, the ECB has barely made changes to the roadmap that it has maintained since March 2020 to face the effects of the coronavirus. The only novelty is that it will extend its high rate of asset purchases within the Pandemic Program (PEPP) until the third quarter of the year – it increased it in the second quarter – to continue facilitating financing conditions for companies and families.

“Based on the joint assessment of financing conditions and inflation, the Governing Council expects that net purchases under the PEPP in the next quarter will continue to be made at a significantly higher rate than during the first months of the year “, includes the communiqué published by the monetary authority at the end of its monthly meeting in Frankfurt.

The rest of the aspects remain as before. That is, the reference interest rates for their refinancing operations they remain at 0%; the deposit facility rate, at -0.50%, and the loan facility rate, at 0.25%. The volume of purchases under the PEPP will remain at 1.85 trillion euros. The acquisitions of assets under this program will be carried out flexibly until March 2022 and the reinvestments of maturities will be carried out until the end of 2023.

Withdrawal of stimuli

Once the doubts regarding possible changes were cleared, the main interest of Christine Lagarde’s appearance after the meeting was to know her position regarding the increase in inflation in recent months and to decipher any clues about a possible withdrawal of stimuli in the future. the call tapering.

For now, in light of his words, I will have to wait. Lagarde and the ECB consider that a premature tightening of the measures puts the recovery and inflation at risk, so they prefer to remain installed in a accommodative posture.

According to his analysis, the upturn in inflation is circumstantial, largely motivated by the rise in energy prices. Its forecasts predict that it will continue to grow towards the fall due to the recovery in demand and supply problems, but go down in early 2022. In figures, it is expected that inflation ended 2021 at 1.9% to reduce to 1.5% in 2022 and 1.4% in 2023. “We are carefully monitoring all the movements that are taking place,” said the French leader.

Recovery of the Eurozone

Without losing sight of inflation, the ECB’s efforts remain focused on propping up the recovery of the economy European Union after the impact of the pandemic and the restrictions of the countries. The entity trusts that growth will accelerate in the second half of the year, thanks to the advance in domestic consumption and the strength of global demand, among other reasons.

“The risks remain balanced,” Lagarde said about the threats to this recovery, which largely depends on the vaccination campaigns and the result of the progressive de-escalation in the countries.

There is “moderate optimism” in the ECB in this regard and for this reason they have revised upwards the forecasts for the GDP of the Eurozone for this year (+ 4.6%), for the next (+ 4.7%) and for 2023 (+ 2.1%).

The european bags, who throughout the session have remained expectant to the conclusions of the meeting, they have hardly altered after knowing the results. The Ibex 35 Spanish advances only 0.2%, in line with the Dax de Frncfort and the Ftse Mib de Miln. Only the Cac 40 francs faces the evening session in symbolic red (-0.07%).


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