The ECB is likely to remain with a loose monetary policy

The European Central Bank (ECB) is likely to remain in favor of an extremely loose monetary policy for several more years. The reason is the different pace of economic recovery in the individual euro area countries, which outweighs the risks of a short-term acceleration in inflation. The international rating agency Moody’s Investors Service reported on Wednesday. "Despite high levels of fiscal and monetary support across the European Union, recovery rates and inflation rates (across countries) are likely to vary significantly, creating the conditions for a different pace of recovery," Madhavi Bokil, vice president and credit analyst, said in a press release. "Potentially different growth and inflation trends across euro area countries will pose a challenge for the ECB in setting a common monetary policy," the analyst added. Moody's expects inflation rates to remain volatile until the end of this year, which is likely to continue for much of 2022, given the one-off increases in goods and services prices. In the second half of next year, the agency expects one-off inflationary pressures to subside and return to normal economic activity. In countries such as Greece, Portugal, Spain and Italy, the return to pre-crisis levels in 2019 is likely to take longer than in the two largest economies of the monetary union, Germany and France, the agency predicts. The uneven recovery also means that stronger economies and regions, especially Germany, will compensate for production outages relatively quickly. On the other hand, this will be reflected in stronger upward pressures on inflation and wages. In economically weaker countries, such as Italy, where recovery is only beginning, stabilization, on the other hand, will take longer, Moody’s concludes.