The Council of the European Central Bank meets here.
(Photo: dpa)
Frankfurt, Düsseldorf The European Central Bank (ECB) is sticking to its monetary policy for the time being in the corona pandemic. The bond purchase program PEPP, which was set up especially for the corona crisis, continues unchanged after it last announced that it would slow down the buying pace. The ECB announced on Thursday.
PEPP, a particularly flexible purchase program, amounts to 1.85 trillion euros and is actually limited to the end of March 2022. In the current announcement, however, there is still the addition that the bond purchases will continue until the phase of the corona crisis is over, according to the Governing Council’s assessment.
PEPP is one of the main instruments to support the flow of credit to the economy during the corona crisis and to ensure favorable financing conditions for companies, states and households. In September, ECB President Christine Lagarde announced a decision on whether to extend it in December.
The ECB is thus continuing its expansionary monetary policy despite the increased inflation in the euro area. At 3.4 percent, inflation has recently risen well above the monetary authorities’ target of two percent and is likely to continue to rise. However, the ECB expects the price pressure to subside next year, which it believes will primarily be caused by increased energy costs and pandemic-related disruptions in supply chains.
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Critics accuse the ECB of using all the cheap money to fuel inflation, which it actually wants to keep in check. A higher rate of inflation weakens the purchasing power of consumers because they can then buy less for one euro than before.
“The ECB put all the important questions – above all the decision on the future of bond purchases – at its December meeting,” said Otmar Lang, chief economist at Targobank, commenting on the decision. The increased inflation expectations actually spoke in favor of a tightening of the monetary tone. On the other hand, the sentiment indicators have fallen at least as much, explains Lang: “And that plays into the hands of the ECB doves, who prefer a more relaxed, economic-stimulating monetary policy, even if this drives up prices.”
As expected, the ECB is not touching interest rates. The key interest rate remains at its record low of 0.0 percent – it has been there since March 2016. The so-called deposit rate that commercial banks have to pay for their deposits with the ECB remains at minus 0.5 percent. Money houses must continue to pay penalty interest if they park excess funds at the central bank beyond an allowance.
With material from dpa and Reuters.
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