ECB leaves key interest rate unchanged despite inflation and Ukraine war

DThe European Central Bank (ECB) leaves the base rate unchanged. While it has now stopped buying new PEPP crisis program bonds, new bonds from the old APP bond purchase program will be purchased until the summer, provided nothing unforeseen happens.

“Some time” after the end of bond purchases, however, interest rates will rise. The Governing Council announced it on Thursday after its April meeting. The president of the ECB, Christine Lagarde, wants to explain the details in a press conference.

The statement said: “At today’s meeting, the Governing Council considered that data received since its last meeting reinforces its expectation that net asset purchases under its asset purchase program should be completed in the third quarter. “. on incoming data and the evolution of the assessment of the outlook by the Governing Council: “Under the current conditions of high uncertainty, the Governing Council will consider optionality in the conduct of monetary policy, gradualism and flexibility. The Governing Council will take all necessary measures to fulfill the ECB’s mandate to maintain price stability and help safeguard financial stability.”

Jörg Krämer, Chief Economist at Commerzbank, commented: “Unfortunately, despite an inflation rate of 7.5 percent, the ECB has not decided today to end its net bond purchases and negative interest rates earlier.” The ECB is in its very loose monetary policy, the more people’s inflation expectations rise and very high inflation becomes permanent.”

Jari Stehn, chief European economist at investment bank Goldman Sachs, told FAZ: “We assume the PPP will be discontinued in July, followed by a 25 basis point rate hike in September and December.” Net Asset Purchases in June and an interest rate hike in July remain open if inflationary pressures continue to build and economic demand remains robust despite the conflict in Ukraine: “However, normalization could be further delayed if demand is strong as a result of the war “Beyond this year, Goldman Sachs expects three interest rate hikes in the euro area in 2023, in March, June and December. In addition, the bank foresees two increases in 2024 up to an interest rate of 1.25 percent. “The ECB Governing Council has renewed its commitment to avoid the risk of fragmentation,” Stehn told FAZ. Also, the ECB would be more willing to intervene in peripheral bond markets rather than refrain from raising interest rates.”

Public pressure on the ECB is great

Unlike the US Federal Reserve (Fed), which raised its key interest rate by 0.25 percentage points, the ECB is leaving its main refinancing rate at 0 percent despite all the political pressure, the banking industry and the public, and also maintains a negative interest rate. rates for banks. However, it offers the prospect of a change and normalization of monetary policy.

Economics professor Lars Feld had suggested that the central bank could now announce an end to negative interest rates by September. Deutsche Bank boss Christian Sewing had said he expected interest rates to rise “in the third quarter, or at the latest in the fourth quarter.”


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