Cyprus Mail
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ECB holds rates as risks rise, inflation holds steady

Lagarde Wonders
ECB puts rates and actions on hold until December.

The European Central Bank (ECB) held key interest rates today at current levels, citing a high-risk environment and low inflation. Quantitative easing programmes are set to continue at the same levels.

Analysts expectations were met, as nearly all had forecast rates being held. “There is a sense that no clear picture will emerge until the end of the year, and we take into account both Covid-19 and the economy,” one analyst told the Cyprus Mail.

Interest rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00 per cent, 0.25 per cent and -0.50 per cent respectively, the central bank said in a statement released on Thursday.

Nor will key ECB interest rates be raised until further improvement is seen on inflation. The Governing Council of the bank expects inflation to remain at present or lower levels. But there is an “underlying dynamic” that is gradually causing inflation to rise, the ECB said.

Eurozone inflation was at- 0.3 per cent in September, after dropping into negative territory in August.

Nonetheless, the Governing Council of the central bank announced its intention to wait until December, “when the new round of Eurosystem staff macroeconomic projections will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate,” at at that time.”

Quantitative easing will continue, but there will be no increase before December. the statement said.

“The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions,” the statement said.

The PEPP programme will also continue until at least the end of June 2021 and, in any case, until the officials judge that the coronavirus crisis phase is over.

Other injections of liquidity through refinancing operations will also continue.



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