The Governing Council of the European Central Bank (ECB) has decided to leave all monetary policy instruments unchanged, thus maintaining the roadmap it amended in March, although as a novelty it has stressed that future monetary policy decisions will be made with “optionality, gradualism and flexibility”.
Thus, the monetary entity will make net purchases of 40 billion euros (43,139 million dollars), which will fall to 30 billion euros ($32,354 million) in May and 20 billion euros ($21,57 billion) in June. After that date, the ECB will consider finalizing net asset purchases under the Public Asset Purchase Programme (APP) in the third quarter, provided that the data support medium-term forecasts of inflation.
Although the final decision will depend on the assessment of the outlook, the ECB stressed in Thursday's statement that the most recent data available “reinforces the expectation” that purchases will end in the third quarter.
If the ECB zeroes net purchases of PPP assets, it will be the second time this has happened since it started this stimulus program in October 2014. Between January and October 2019, the ECB already stopped net asset purchases, only reinvesting maturities.
In any case, the monetary authority has remained unchanged in its commitment to reinvest maturities of assets purchased under the APP “for an extended period of time” after interest rates begin to rise.
INTEREST RATES
The issuing institute has kept the reference interest rates for its refinancing operations unchanged at 0%, while the deposit facility rate will remain at -0.50% and the lending facility rate at 0.25%. However, the prospects have changed.
Any adjustments to the price of money will take place “sometime” after net asset purchases end. Likewise, any change in interest rates “will be gradual”.
“The path for the ECB's interest rates will continue to be determined by the Governing Council's forward-looking direction and by its strategic commitment to stabilizing inflation by 2% in the medium term,” the agency stressed.
Where there has been no change is in the emergency pandemic purchase program (PEPP). The maturities of assets purchased under the PEPP will be reinvested until the end of 2024. In addition, should there be a new “market fragmentation”, the ECB will execute these maturities with “flexibility” in terms of time horizon, asset classes and jurisdictions.
With regard to bank liquidity, the Frankfurt-based entity has indicated that it will monitor the financing conditions of banks to ensure that the expiration of TLTRO-III auctions does not affect the transmission of its monetary policy.
“The Governing Council is ready to adjust all its instruments within its mandate, incorporating flexibility if necessary, to ensure that inflation stabilizes at 2% in the medium term,” concluded the monetary authority.
INFLATION AND GDP
The gross domestic product (GDP) of the euro area registered a quarter-on-quarter increase of 0.3% in the fourth quarter of 2021, two percentage points lower than in the previous three months, according to the latest data published by Eurostat, the Community Statistics Office.
On the other hand, prices recorded inflation in February of 5.9%, eight tenths more than in the previous month, due to the increase in energy and food prices, marking their highest since there are historical records.
Similarly, the annual core inflation rate of countries that have adopted the euro as their common currency, which is the result of excluding the evolution of energy, fresh food, alcohol and tobacco prices from the calculation, rose by four, to 2.7%.
With regard to unemployment, the February rate of the euro zone, the last available rate, fell by one tenth, to 6.8%. In the EU as a whole, unemployment stood at 6.2%, also one tenth less.
The next meeting of the Governing Council of the agency responsible for monetary policy in the eurozone will be held on 9 June 2022.
(with information from EP)
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