On Thursday, July 22, the Governing Council of the ECB, following the meeting, kept the base interest rate unchanged at 0.0%.
Key points of the ECB meeting
The ECB’s Governing Council expects interest rates to remain at or below current levels until the regulator sees inflation forecast steadily approaching the 2% per annum target.
The regulator is ready to adjust all its instruments accordingly to ensure that inflation stabilizes at 2% in the medium term.
The volume of the PEPP asset repurchase program remained at the level of 1.85 trillion euros. The buyback will continue at a much faster pace than at the beginning of the year. The program will continue until at least the end of March 2022.
ECB head: inflation will decrease next year
During a press conference, the head of the ECB noted that the economy recovered in the second quarter of the year and, as restrictions are lifted, is on the way to significant growth in the third quarter.
Christine Lagarde expects economic activity to return to pre-crisis levels in the first quarter of next year. But there is still a long way to go before the damage done to the economy by the pandemic is compensated.
Inflation in June was 1.9%. The ECB believes that inflation will continue to rise in the coming months and will decline again next year. The current increase is largely driven by higher energy prices and the underlying effects of the sharp drop in oil prices at the start of the pandemic, as well as the impact of a temporary VAT cut in Germany last year. By the beginning of 2022, the influence of these factors should disappear, since they drop out of the calculation of annual inflation.
The recovery in growth and inflation continues to depend on favorable financing conditions. Market interest rates have declined since the last ECB meeting. Financing conditions for most firms and households remain favorable.
Summing up, Christine Lagarde noted that the Eurozone economy is recovering strongly. But the outlook continues to hinge on the course of the pandemic and progress in vaccination.
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