European Central Bank policymakers decided on Thursday that the European Central Bank will continue to buy bonds and maintain its deeply negative interest rates in an attempt to get the euro zone economy out of the pattern of persistently low inflation.
The European Central Bank also stated for the first time that it is prepared to tolerate moderate inflation targets and temporary overshoots, which may be due to the fact that it believes it is necessary to adopt a “persistent” policy when interest rates are near the lowest point at which interest rate cuts are effective. ——Just like they are now.
The new guidelines were issued two weeks after the European Central Bank agreed New strategy Raising the inflation target to 2%, abandoning their promise to keep price increases below that level, and accepting their promise that they can even temporarily exceed that level. This is the first change in strategy in the past two decades.
After the Frankfurt Monetary Policy Conference, the central bank said in a statement that its revised guidelines will “emphasize its commitment to maintain a sustained easing monetary policy stance to achieve its inflation target”.
It stated that before the inflation rate reaches 2%, its deposit interest rate will not rise from minus 0.5%, “far before the end of its forecast period, and lasts for the rest of the forecast period, and it believes that potential inflation has already The progress achieved is sufficient to align with the inflation rate stabilizing at 2% in the medium term”.
It added: “This could also mean a transitional period when inflation is moderately higher than the target.”
Compared with the previous guidelines, the new wording sets a higher standard for rising interest rates, that is, inflation must “strongly converge” to its target, and this convergence must “always be reflected in underlying inflation dynamics.”
However, given that inflation has been lower than the European Central Bank’s earlier target of “close to but below 2%” for the past decade, most investors Stay skeptical Regarding the possibility of the bank achieving its new goal.
Some European Central Bank rate makers call Reduce the speed of bond purchases through the 185 million euro pandemic emergency purchase plan (PEPP) launched last year in response to the Covid-19 crisis.
But in Thursday’s statement, the European Central Bank adhered to its guidelines that PEPP will last at least until March 2022, and will only end after its policymakers decide that the “coronavirus crisis phase is over”.
The market generally expects that the European Central Bank will decide whether to change the pace of PEPP purchases in September; in March, after the euro zone sovereign bond yields began to rise, the country increased it to 80 billion euros per month.
Some other major central banks in the world, such as Canada and Australia, have decided to slow down the pace of Covid-related stimulus plans. The Fed and other institutions are still debating when it will end.
On Thursday, the European Central Bank reiterated its earlier guidelines that its decision on PEPP will be based on “preventing financing conditions from tightening, which is inconsistent with responding to the downward impact of the pandemic on the expected inflation path”.
It also stated that its regular asset purchase program-which runs 20 billion euros per month-is expected to continue “as long as necessary to strengthen the easing impact of our policy rates and to end shortly before we start raising the key interest rate of the European Central Bank.”
Eurozone inflation has been rising in recent months; consumer prices in June were 1.9% higher than a year ago. As the pace of economic recovery in the Eurozone accelerates, it is expected that the pace of price increases will further accelerate in the second half of this year.
But the European Central Bank expects the inflation rate to fall to 1.5% next year, prompting some interest rate makers to believe that the bond purchase program should be expanded.
Earlier this month, a survey of about 250 German financiers and economists conducted by the Frankfurt Financial Research Center found that eight in ten people believed that as the government became more dependent on purchases, it would break away from the European Central Bank’s low price. Interest rate policy will become increasingly difficult. Their bonds”.