The European Central Bank (ECB) leaves interest rates unchanged, despite peaking inflation. On Thursday, the central bankers of the eurozone and the ECB top guys also did not tinker with the other measures from the monetary toolbox.
European central banker Christine Lagarde reiterated expectations that inflation will decline in 2022, although she acknowledged that it is currently staying elevated longer than expected.
The primary interest rate in the eurozone has been at zero since March 2016. Banks that want to park excess money at the ECB even have to pay a penalty interest of 0.5 percent. The unchanged interest rates come as no surprise. Lagarde previously stated that she does not see an interest rate hike in 2022.
On the other hand, the ‘pressure’ is increasing. Inflation in the eurozone, for example, increased in January to 5.1 percent on an annual basis. It is the third record in a row, driven by the peak energy prices. However, that 5.1 percent is a long way from the medium-term inflation target of 2 percent that Frankfurt is pursuing.
The ECB has stated several times that it sees inflation still cooling this year. That message was echoed again in the explanation of the interest rate decision. According to Lagarde, after a sharp rise in recent months under the influence of energy prices, there was a surprising increase in January. As a result, inflation is likely to remain elevated for longer than expected but should decline throughout 2022.
Some other central banks are currently intervening. For example, the Bank of England raised interest rates again on Thursday, for the second time in three months. In addition, the Federal Reserve hinted at a rate hike in March last month in the US.
Furthermore, the ECB does not change the purchase programs with which it pumps billions into the economy. In December, it was already announced that the corona stimulus program, with a total envelope of 1,850 billion euros, will be discontinued after the end of March. To partly compensate for this, the ‘regular’ financial asset purchase program will be temporarily expanded when the corona stimulus ends.
