European Central Bank Keeps Stimulus Policy Despite Rising Prices
October 28, 2021–The European Central Bank decided to keep its emergency purchase program in place, even though the economy is recovering and prices are rising. The decision lets the central bank continue its policy of purchasing financial assets and keeps interest rates in negative territory.
That is in spite of an inflation rate of 3.4 percent, which is higher than the target of 2 percent. The Euro’s short-term interest rate hovers below zero at -0.573 percent. Meanwhile, the 10-year government bond is also in negative territory at -0.16 percent.
The EBC dismissed rising inflation, saying, “This is mainly because oil, gas and electricity prices have gone up a lot and demand is rising faster than supply. But we expect inflation to fall in the course of 2022 as these issues fade away.”
“High energy prices may reduce purchasing power in the months to come,” ECB President Christine Lagarde said on Thursday. She referenced surging energy and transportation costs. “These constraints are clouding the outlook for the coming quarters.”
Lagarde predicted prices would come down in 2022, based on historical fluctuations.
What Normal?
However, during the ECB’s press conference on Thursday, she made an unconvincing case about the reasons for continuing the loose monetary policy. Furthermore, asked by a reporter when the ECB would return to normality, her answer suggested there may be no return to pre-financial crisis
“I’m not sure what are normal policies,” she said. “There are the traditional tools that were used in the past, and that have been used to good effect, and over the course of the development of the financial crisis in particular, of the European sovereign debt crisis, new territories had to be explored in order to deliver on the price stability mandate that was assigned to the ECB.”
Lagarde added that she sees the emergency program coming to an end in March of 2022.
Copyright secured by Digiprove © 2021 Patti Mohr