With rising inflation, the European Central Bank keeps its policy steady
As major economies grapple with higher-than-expected inflation and ongoing supply chain disruptions, the European Central Bank stuck to its policy stance on Thursday. As it continued its pandemic-era bond-buying program at a slightly slower pace than earlier this year, the bank kept interest rates steady.
Last month, policymakers made the slowest pace of purchases in the central bank’s pandemic-era bond-buying program, from around €80 billion a month. Bond purchases are one of the ways the bank keeps interest rates low, and at the time the bank’s president, Christine Lagarde, attributed the change to improving economic prospects and rising inflation expectations.
Bond purchases are one of the ways the bank keeps interest rates low, and at the time the bank’s president, Christine Lagarde, attributed the change to improving economic prospects and rising inflation expectations.
The annual inflation rate in the Eurozone rose to 3.4% in September, the highest rate in 13 years.
Yes, the economy is recovering from this pandemic, but the demand for goods has disrupted supply chains. Lagarde said in a speech earlier this month that the central bank estimated that exports from the eurozone would have been about 7% higher in the first half of the year had it not been for these bottlenecks, an effect more severe than the rest of the world, which would have led to a rise in exports by An additional 2.3%.
The central bank’s 1.85 trillion euro ($2.15 trillion) pandemic bond-buying program is set to run until at least March, and investors are eager to know if this program will be extended or whether the bank’s program will be expanded. The old central bank to buy bonds, in order to help achieve the inflation target of 2% in the medium term.
Lagarde said last month that the future of these bond programs won’t be discussed until the Bank’s December meeting, when policymakers get a new set of forecasts for economic growth and inflation.
The European Central Bank is expected to have a more flexible monetary stance, with lower interest rates, for a longer period of time than the policies of the US Federal Reserve and the Bank of England, because its long-term inflation expectations remain below the ECB’s target.
In Britain, inflation is expected to rise to more than 4%, which is higher than the Bank of England’s target of around 2%. Central Bank Governor Andrew Bailey said the rate of inflation was a cause for concern, and officials needed to prevent high inflation from becoming permanent.
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