The ECB remains dovish and leaves interest rates on the main refinancing operations at 0,00%, on the marginal lending facility at 0,25% and on deposits at -0,50%. Just an hour earlier, the Bank of England announced the increase in key rates by 0,25 percentage points to 0,5%, after the first hike established in December.
Eurotower also confirmed that in the first three months of 2022 the net asset purchases made under the pepp program will proceed at a slower pace than the previous quarter and that the plan will be completed at the end of March while reinvestments will continue until at least the end of 2024.
Nothing changes even on the other decisions announced in December: in the second quarter the app program it will continue at a rate of 40 billion euros a month, while in the third it will drop to 30 billion and in the fourth to 20 billion. The Council also reaffirmed its readiness to adjust all its tools should the need arise, in order to ensure that inflation stabilizes at the 2% target over the medium term.
An attitude reaffirmed by Christine Lagarde during the monthly press conference in Frankfurt. However, the president of the ECB announced that the Eurotower will make the necessary assessments on the path of monetary policy in March, when the new macroeconomic projections. In any case, he specified, there will be no increase before the end of net asset purchases. “We are determined to make the right decisions at the right time and not take any hasty steps without having the right data at our disposal,” Lagarde said, adding that “I never make commitments without elements of conditionality and this is more important now than ever. As I said, we will make a careful evaluation and we will be data-dependent in our decisions".
Inflation and growth
Inflation will remain elevated for longer than expected but the Eurozone economy is increasingly less affected by the effects of the pandemic.
On consumer prices, which according to Eurostat's flash estimates, it should be by 5,1% in January 2022, up from 5% in December, the ECB continues to insist on the transitory nature of the flare-up. According to expectations, explained Lagarde, inflation should remain at high levels "longer than previously expected, and then diminished over the course of the year”. Compared to December, however, "the risks to inflation are now tilted to the upside," she said, explaining that however this is also a positive factor because we are approaching the medium-term inflation target.
The number one of the Eurotower also reiterated that within the board of directors “there was a unanimous concern about inflation“, with the governors who had a very in-depth discussion and focused on the most recent data and medium-term forecasts.
Lagarde finally reassured about economic recovery of the Euro area, however admitting that "in the first quarter the growth of the economy will remain subdued but will recover vigorously during the year thanks to the reduction of supply bottlenecks". "The economy is less and less affected by the waves of the pandemic and the factors holding back production and consumption should gradually ease, allowing the economy to recover strongly during the year", concluded the ECB president.
