La European Central Bank puts into practice the new strategy adopted on 8 July. After raising the target level of inflation (which previously was "below but close to 2%", while now it is at a flat 2%, with the possibility of tolerating overshoots), the Governing Council of the ECB announced today that the prospects for the future of monetary policy have been changed to an even more expansive direction.
First of all, interest rates they will remain at current levels (0% the official rate, -0,50% the rate on deposits with the ECB), if not even lower, for longer than previously indicated. In detail, the Eurotower announces that it will only change the cost of money when it sees inflation destined to reach 2% "well before" the end of the time horizon of the macroeconomic projections elaborated by the ECB itself. Not only that: to justify a rise in rates, the rise in inflation must also be considered "lasting".
This is an important clarification, because in the eurozone inflation actually returned to 2% last May, but this rise does not bring Frankfurt's monetary tightening any closer, given that it is a temporary increase and not linked to the underlying inflation. In fact, according to the forecasts published in June, the price run will settle at 1,9% this year, but will drop to 1,5% in 2022 and 1,4% in 2023. “Even if the outlook inflation rates have increased, there is still a certain distance from our target”, confirmed the institute's number one, Christine Lagarde.
For the other measures of monetary policy, remain unchanged both the quantitative easing "traditional" (the first securities purchase programme, which is worth 20 billion euros a month) and the PEPP (the securities purchase program launched to deal with the pandemic crisis).
Lagarde specified that the new forward guidance, ie the recalibration of the indications for the future, was not approved by the Governing Council unanimously, but with an "overwhelming majority". In any case, the change announced today "is an indication that nobody wants a premature squeeze: experience has taught us that patience is a key element in rebuilding trust and our approach is to keep a steady hand".
Finally, the number one of the ECB underlined that "the economic recovery is on track, the number of vaccinated people is increasing and the lockdown measures are being relaxed, but the pandemic continues to cast a shadow: the delta variant of the coronavirus it can undermine the recovery in services, especially in tourism and hotels".
