The European Central Bank (ECB) intends to keep interest rates at their current historical low levels or even lower in the near future.
ECB’s move, which aims to align its monetary policy with the new inflation target, comes amid the renewed economic threat posed by the Coronavirus pandemic crisis.
The bank said it plans to keep the interest rate “at current levels or below” until the inflation target is met and eventually stabilizes at the bank’s new annual target of 2%.
European Central Bank
“This may also imply a transitory period in which inflation is moderately above target,” ECB added.
European Central Bank President Christine Lagarde announced this month that the bank plans to adopt a slightly higher annual inflation target of 2%, which was a key recommendation of its first monetary review in 18 years.
The current target is slightly lower, but close to 2%.
The annual inflation rate in the 19-nation eurozone fell from 2% in May to 1.9% in June — just below the ECB’s new target, according to official data released last week.
The ECB also left benchmark interest rates unchanged at record low levels after financial markets rebounded following a bout of volatility.
The fluctuations were caused by fears that the outbreak of the new highly contagious Coronavirus strain known as “Delta’ could destabilize the pandemic recovery.
The ECB’s 25-member Governing Council also said it would keep its bond-buying program at 1.85 trillion euros.
The bank also said that the program will continue until March, or until the Bank decides that the phase of the Coronavirus pandemic crisis is over.
On the other hand, Lagarde warned that the rapid increase in the number of coronavirus infections caused by the delta mutation represents a “rising source of uncertainty” for the eurozone economy.
The recovery of the eurozone economy is on the right track…but the pandemic continues to cast a shadow, especially as the delta mutant is a growing source of uncertainty, she said.
She explained that this fast-spreading version could discourage recovery in the service sector, especially tourism and hospitality.
This supports the European Central Bank’s decision to maintain its accommodative monetary policy.