The ECB has not changed its monetary policy stance

Despite accelerating inflation, the European Central Bank (ECB) has not changed its monetary policy stance. The Board of Governors will decide on the fate of the Pandemic Emergency Purchase Program (PEPP) only in December. On Thursday, the Governing Council left the key rate at zero, the deposit rate at -0.50% and the overnight refinancing rate at 0.25%. It also did not change the direction of expectations, purchases of assets under the APP program, its reinvestment strategy or long-term refinancing operations. The ECB also confirmed that favorable financing conditions can be maintained at a slightly slower pace of net asset purchases under the PEPP. It decided on this slowdown in purchases at its September meeting. In support of its symmetric 2% inflation target and in line with its monetary policy strategy, the Governing Council expects key interest rates to remain at current levels or fall further until they see inflation at 2% well before the end of the forecast horizon and do not expect that it is stabilizing at this level in the medium term. This may mean that inflation will be slightly above the 2% target for a transitional period. The ECB will continue its program of purchasing APP assets at a rate of 20 billion euros per month. The Governing Council continues to anticipate that the APP asset purchase program will continue for as long as necessary to amplify the stimulus effect of base rate settings. The program will end just before the ECB starts raising its key rates. The ECB will also continue to reinvest the full principal repayments on bonds acquired under the APP asset purchase program for an even longer period after raising interest rates and in any case for as long as necessary to maintain favorable liquidity conditions and a high degree of monetary accommodation. The ECB also confirmed the framework of the emergency pandemic program for the purchase of PEPP assets at EUR 1.85 trillion. The program will continue in a flexible manner until the end of the corona crisis, according to the Governing Council, but in any case at least until the end of March 2022. Based on a joint assessment of the financing conditions and the inflation outlook, the Governing Council assumes that favorable financing conditions will be maintained even at a lower rate of net purchases under the PEPP compared to the previous two quarters. Purchases will be made flexibly depending on the market situation. The ECB aims to prevent tightening of financing conditions, which would run counter to efforts to neutralize the dampening effect of the pandemic on expected inflation developments. The Governing Council will continue to reinvest the principal on repaid securities purchased under the PEPP at least until the end of 2023. In future, the reduction of the PEPP portfolio will in any case take place in a managed manner so as not to disrupt the appropriate monetary policy stance. The ECB will continue to provide sufficient liquidity through refinancing operations. The Governing Council also stated its readiness to adjust all its instruments, if necessary, in order to stabilize the pace of price growth over the medium term at its 2% target.