Minutes of ECB meeting
At its meeting last week, the European Central Bank (ECB) left its monetary policy unchanged, as expected. It is very likely to maintain its key interest rate in the negative zone for at least another year, despite a sharp rise in inflation in the euro area, suggesting a divergence with other central banks, such as the US Federal Reserve, which already communicates that it will gradually end the policy of cheap money. The ECB has reaffirmed its plan to continue buying bonds, pushing borrowing costs to record lows. The ECB still considers the recent rise in inflation in the euro area above its 2% target to be temporary and expects price pressures to ease next year.
ECB President Christine Lagarde admitted on Thursday that the recent rise in inflation in the eurozone to 3.4% in September will take longer than originally expected. She identified energy prices and problematic supply chains as the main attributes. According to the ECB, the favorable financing conditions created by its very loose monetary policy are still crucial for the euro area economy to recover from the COVID-19 pandemic. She added that high energy prices were likely to stabilize when stocks were restored and that supply chain bottlenecks would ease over time. The ECB said in a statement that it would keep its key interest rate at minus 0.5% and will continue to buy bonds under the € 1.85 trillion asset purchase program at least until March 2022.
The Board of Governors will decide on the fate of the Pandemic Emergency Purchase Program (PEPP) at its December meeting (16 December). After the meeting, economists also revised their forecasts and now forecast price growth in the euro area at 2.3% this year, 1.8% in 2022 and 1.6% in 2023.
The European Central Bank (ECB) set the euro reference rate at $ 1.1593 on Thursday afternoon.
Ing. Róbert Bučič
Portfolio manager, IAD Investments