The European Central Bank (ECB) decided to maintain debt purchases to combat the pandemic, endowed with 1.85 trillion euros until the end of March 2022 or, in any case, “until it considers that the crisis phase of the coronavirus has finished”. In a statement, the institution chaired by Lagarde also decided to keep interest rates untouched at 0% and the deposit facility at -0.5%.
Although most countries maintained that there was a recovery after the pandemic, the high inflation in the main countries of the world made the central banks maintain the stimulus to overcome the inflation problems. The European Central Bank (ECB) with its pandemic emergency purchase program (PEPP) and the European Commission, with the European recovery fund, moved within these parameters. The rise in prices, on the other hand, puts more pressure than ever on the Eurobanco, whose governing council meets this Thursday in Frankfurt.
The markets were not expecting any major changes, but they were attentive to any reference that its president, Christine Lagarde, could make on inflation. “Inflation is increasing, mainly due to rising energy prices, but also because the recovery in demand is outpacing limited supply.. We expect inflation to increase even more in the short term, but then it will decrease over the next year. ”Lagarde said in his post-council speech.
Lagarde has so far tried to reconcile with the market that asked to accelerate the step in the withdrawal of the debt purchase program and those who fear that any misstep in the withdrawal of those acquisitions could mean an increase in risk premiums. For now, Lagarde has dispelled those fears. “Favorable financing conditions are essential for the economy to continue its recovery and counteract the negative impact of the pandemic on the inflationary path,” he said.
“We continue to consider that favorable financing conditions can be maintained with a moderately lower rate of net asset purchases under the pandemic emergency purchase program (PEPP) than in the second and third quarters of this year”, express.
The inflation numbers
The ECB raised its inflation projections for 2021 to 2.2% in September, but considered that in the medium term it would fall below 2%: 1.7% in 2022 and 1.5% in 2023. In subsequent speeches, Lagarde repeatedly insisted that inflation is “temporary” due to bottlenecks, labor shortages in some sectors, the strong rebound in consumption after the pandemic and the sudden rise in price of energy. And he also asked “not to overreact.”
Lagarde this Thursday detailed that the rise in inflation is due to three factors: energy prices, which explains half of the September price increase in the euro zone; the recovery of demand due to the reopening of the economy, and the end of the temporary reduction of VAT in Germany. Even so, the president of the ECB has admitted the risks that are on the horizon: “If the bottlenecks persist and translate into higher wage increases than expected or if the economy returns more quickly to its full capacity, the pressures on the prices could become stronger ”.
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