European Central Bank meeting June 2021: economic projections

European Central Bank (ECB) President Christine Lagarde gestures as she addresses a information convention on the result of the meeting of the Governing Council, in Frankfurt, Germany, March 12, 2020.

Kai Pfaffenbach | Reuters

The European Central Bank selected to not sign when it would begin decreasing its pandemic-era stimulus program on Thursday, and expects inflation to stay beneath its goal within the foreseeable future.

“Inflation has picked up over recent months, largely on account of base effects, transitory factors and an increase in energy prices. It is expected to rise further in the second half of the year, before declining as temporary factors fade out,” ECB President Christine Lagarde stated at a press convention Thursday following the financial institution’s common fee resolution.

“Our new staff projections point to a gradual increase in underlying inflation pressures throughout the projection horizon, although the pressures remain subdued in the context of still significant economic slack that will only be absorbed gradually over the projection horizon. Headline inflation is expected to remain below our aim over the projection horizon,” she added.

Recent knowledge has proven an overshoot in inflation for the 19-member space that shares the euro, to above the ECB’s goal of near, however beneath, 2%. The ECB had beforehand stated it was anticipating costs to select up in 2021, however solely quickly.

The knowledge has raised questions on the way forward for financial coverage within the euro zone, with market gamers wanting solutions on how lengthy the central financial institution will sustain its huge financial stimulus. The ECB dedicated to buying 1.85 trillion euros ($2.2 trillion) of bonds till March 2022 as a part of its Pandemic Emergency Purchase Program (PEPP). 

On Thursday the central financial institution determined to maintain this stimulus on the desk, and its ultra-low rates of interest have been additionally left unchanged.

Brighter outlook

The ECB offered an replace to the economic outlook within the euro zone on Thursday. The financial institution now expects a gross home product fee of 4.6% for 2021 and 4.7% for 2022 — each of which have been revised upward.

In phrases of inflation, the ECB additionally offered new, increased forecasts for 2021 and 2022 from a earlier evaluation in March. Annual inflation is now set to achieve 1.9% this yr and 1.5% in 2022.

Carsten Brzeski, world head of macro at ING Germany, stated in a be aware that the ECB clearly wished to keep away from any taper speak at Thursday’s meeting and due to this fact selected to remain put.

Andrew Kenningham, chief Europe economist at Capital Economics, stated the euro zone’s central financial institution remains to be more likely to engineer a really gradual taper within the second half of this yr.”

“But the large image is that coverage will stay extremely accommodative for a very long time to return,” he added.

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