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Friday, September 17, 2021

European Central Bank acknowledges rising inflation fears. “The lady isn’t tapering.”

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European Central Bank acknowledges rising inflation fears. "The lady isn’t tapering."

The ECB voted today to maintain the zero-percent interest rate for its major refinancing operations. It also maintained the marginal lending facility at 0.25 % and the deposit facility at -0.5 %. The central bank was also forced to act by inflation worries.

Christine Lagarde (ECB President) stated that the verdict was unanimous in all aspects during a press conference today.

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The ECB stated that interest rates would remain low until inflation is seen as reaching 2 percent, which will be “well ahead” of its projected horizon.

The ECB stated that this could also indicate a temporary period of inflation slightly above target.

Quintet Private Bank’s chief economist, Daniele Antonucci commented on the most recent ECB interest rate decision.

READ MORE: State pensions ranked: UK system ‘flatlines’ on the global stage

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Shane O’Neill from Validus Risk Management was also the Head of Interest rates. He said: “As we expected, neither the main interest rate nor the amount of the ECB’s PEPP envelope were changed. It remains at EUR1,850billion.” Although the PEPP will remain in place until March 2022 at the earliest, the pace of monthly purchases will slow down to EUR80bio per month.

The news is that the EURUSD has remained virtually the same on the market, and the attention of the markets will shift to the press conference.

In an effort to assure the public that the lady wasn’t “tapering,” Ms Lagarde invoked Margaret Thatcher during the press conference.

We are doing a recalibrating just like we did in December and March. She said that we are doing this on the basis the framework which is a jointly assessed.”

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These developments follow recent ones from the Bank of England.

The Treasury Committee questioned BoE policymakers yesterday about the economic state.

It was revealed that the central bank team had a split on interest rates when they were pushed.

Four of the BoEs’ policymakers were of the opinion that the conditions for the consideration and approval to raise the interest rate had been satisfied in August. However, four others believed that the recovery wasn’t yet complete.

Felicity Buchan (Conservative MP for Kensington) said: “In our discussions on forward guidance, and whether or not the threshold [for increasing rates] was met, you kindly gave us the information that it was four to five …,”.

“… Would you be willing to tell us your current position?

Andrew Bailey, Governor of Bank of England was first to reply: “I believe we can do it.”

“So, my opinion was that the guidance had already been followed.”

Dave Ramsden (Deputy Governor for Markets and Banking, BoE) responded that he had given a speech to the BoE in July, where he kind of flagged the fact that I believed the guidance was nearing being fulfilled.

“And when we reached the August round, I also believed that the guidance had been fulfilled, as you all know, it was significant progress in eliminating excess capacity and a sustainable return to inflation target.

These were not sufficient to tighten the belt, but they were necessary.

The BoE currently has a base rate of 0.1 percent.

Publited at Thu, 9 Sep 2021 11:00:00 +0000

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