The European Central Bank will continue to buy bonds and keep its interest rates deeply negative in an attempt to move the eurozone economy out of its persistent slow inflation pattern, its policymakers decided Thursday.
The ECB also said for the first time that it was ready to tolerate a moderate and transitory overshoot of its inflation target, which could result from the “persistent” policy it believes is necessary when rates are close to the lowest point in time. which sizes are effective – as they are now.
The new guidance came two weeks after the ECB accepted it a new strategy which raised its inflation target to 2 percent, dropped a promise to keep price increases below that level and accepted that they can even temporarily exceed it. It was the first strategy change in almost two decades.
Following the monetary policy meeting in Frankfurt, the central bank said in a statement that its revised guidance “underlines its commitment to maintaining a persistently accommodative monetary policy stance to meet its inflation target”.
He said his deposit rate will not increase by minus 0.5 per cent until inflation reaches 2 per cent “long before the end of its projection horizon and sustainably for the rest of the horizon. projection, and judges that the progress made in underlying inflation is advanced enough to be consistent with inflation stabilizing at 2 percent over the medium term. ”
He added: “This may also imply a transitional period in which inflation is moderately above target.”
The new formulation sets a higher bar for rising interest rates than the previous guideline that inflation should “robust convergence” with its target and this convergence should be “constantly reflected in the dynamics of the underlying inflation “.
However, given that inflation has gone below the ECB’s previous target of “close, but below, 2 per cent” for almost a decade, most investors they remain skeptical about the likelihood that the bank will meet its new goal.
Some ECB tax regulators have called for a reduction in the pace of bond purchases through the $ 1.85 million pandemic emergency purchase program (PEPP) it launched in response to the Covid-19 crisis last year.
But in its statement on Thursday, the ECB adhered to its guidance that the PEPP will last until the March 2022 low and end only once its policymakers have decided that “the coronavirus crisis phase it’s over ”.
The ECB is largely expected to decide in September whether to change the pace of PEPP purchases; in March it rose to 80 billion euros a month after yields on eurozone sovereign bonds began to rise.
Some of the other major central banks in the world, such as Canada and Australia, have already decided to slow down the pace of their Covid-related stimulus programs. Others like the US Federal Reserve are still in dispute when liquidating.
On Thursday, the ECB reiterated its previous guidance that its decision on the PEPP would be based on “preventing a tightening of financing conditions that is inconsistent with the fight against the impact of the pandemic on the projected path. of inflation “.
He also said that his regular asset acquisition program – running at € 20 billion a month – was planned to continue “for the time necessary to reinforce the accommodative impact of our policy rates, and to end shortly before we start raising the ECB’s key interest rates. ”
Eurozone inflation has been rising in recent months; in June consumer prices were 1.9 per cent higher than a year ago. The pace of price growth is expected to accelerate further in the second half of this year as the economic recovery of the bloc accelerates.
But the ECB expects inflation to fall back to 1.5 percent next year, encouraging some tax settlers to argue that they should expand their bond purchase plans.
In a survey of about 250 German financiers and economists earlier this month, the Frankfurt Center for Financial Studies found that eight out of 10 believe it would be “increasingly difficult to move away from the policy of low interest rates. interest of the ECB that governments become increasingly dependent on the acquisition of their bonds ”.