European Central Bank's Interest Rate Decision Will Be Announced Today

 

• - The short term is getting more and more challenging.
• -The ECB (European Central Bank) has a large number of unused firepower.
• -In the longer term, uncertainty prevails.

 

The European Central Bank will not change its easy monetary policy.

The second wave of COVID-19 further weakens the already weak outlook and keeps the door wide open for financial incentives. The comprehensive incentive package released in December had expanded the authority until 2021. The European Central Bank's policymakers are eager to keep the eurozone economy afloat until normal business activity resumes and hand over the fiscal policy flag to governments. But new pandemic measures (shutdowns) and the slow pace of vaccines reaching the public in 19 countries using the euro, the currency's difficult situation will add to the difficulties for exporters.

The ECB looks set to challenge the strong recovery forecast predicted to begin in the second quarter.

ECB President Christine Lagarde is able to make decisions easily without further approval from policy makers, thanks to the flexibility it brings to support programs and is expected to say that no more incentives are required. Danske strategist Piet Haines Christiansen said, "The recalibration of the ECB's policies in December was well embraced by the markets. This means there is no urgency for the bank to point to a new policy stance."

The ECB is expected to announce its policy decisions at 12:45 GMT, followed by Lagarde's press release at 13:30 GMT.

  Instead of policy action Lagarde will seek support through neat communication and will emphasize its awareness of the risks. Lagarde is anticipated to admit that the near future will be more difficult than some optimistic predictions, and to speak of the view that commercial banks' plans to restrict access to credit will hinder growth. However, the administration of COVID-19 vaccines should not affect long-term growth due to the resolution of many important issues such as the conclusion of the Brexit agreement and the uncertainty of the US election results due to President Joe Biden taking office on Wednesday.

Positive market indicators support Lagarde's argument.

Despite some political ups and downs in Italy, stocks are on the rise, interest rates are stable and government borrowing costs are falling. There is also an untapped fund of about 1 trillion euros in the Pandemic Emergency Procurement Program (PEPP) to support the commitment to keep borrowing costs low.  

" We believe that the ECB's sensitivity to market pressure and inflation expectations will decrease.''

Recent economic history also supports the ECB. When most economic activity reopened last summer, a faster-than-expected recovery was observed. This shows that companies are more resilient than feared. Societe Generale economist Anatoli Annenkov said, "We believe that the ECB's sensitivity to market pressure and inflation expectations will decrease. We invite the direction of fiscal policy to be directed to the control of inflation that is expected to increase in the long term." On a trade-heavy basis, the euro, the only currency that is relatively more suitable for exporters, has been weakening since the ECB's last policy meeting on December 10. Inflation will continue to be a thorn in the European Central Bank. While rising oil demand may help put an upward pressure on prices in 2021, it falls far short of the target in the long run. With Thursday's decision, the ECB's benchmark deposit rate - 0.5 percent, and the overall quota for bond purchases under the Pandemic Emergency Purchase Program is expected to be 1.85 trillion euros. European Central Bank's Interest Rate Decision Will Be Announced Today Source: https://www.reuters.com/ You may also be interested in:

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