The European Central Bank pledged on Thursday to keep interest rates at record lows for even longer to boost sluggish inflation and warned that the rapidly spreading Delta variant of the coronavirus poses a risk to the euro zone’s recovery.
The ECB has committed to purchasing 1.85 trillion euros ($2.2 trillion) of bonds until March 2022 as part of its Pandemic Emergency Purchase Program, and policymakers voted to keep this stimulus on the table for the time being.
Interest rates were also left unchanged, with the rate on the main deposit facility remaining at -0.5%, the benchmark refinancing rate at 0% and the marginal lending facility at 0.25%.
However, the euro zone central bank’s Governing Council revised its forward guidance on interest rates, having upgraded its inflation target to a symmetric 2% over the medium term at its recent strategy review.
The ECB said in a statement that it expects interest rates to remain “at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.”
The central bank of the 19 countries that share the euro said it would not hike borrowing costs until it sees inflation reach its 2% target “well ahead of the end of its projection horizon and durably” -- a controversial decision that generated significant dissent.
“We did so to underline our commitment to maintain a persistently accommodative monetary policy stance to meet our inflation target,” ECB President Christine Lagarde told a news conference.
She said the ECB wants to see inflation head to 2% by the mid-point of its forecast horizon, which currently stretches to 2023 and is extended by one year every December, and that any deviation above the target should be incidental.
Reference: Reuters, CNBC