Faced with concerns about the spread of the more dangerous Covid-19 variant, the European Central Bank (ECB) chose to maintain their stimulus package with low interest rates until the inflation rate reached the 2% target for a relatively long period of time.
The ECB stressed that it would continue to push the economy even if the move would result in inflation being above target for a while. ECB Chairman Christine Lagarde noted that the economic recovery is still ongoing but warned that the Delta Covid-19 variant could increase risk.
The bank’s policy meeting on Thursday was the first to adopt the bank’s new monetary policy strategy which analysts say will push banks to maintain this stimulus for a longer period of time.
So far annual inflation is 1.9% in June but this figure does not reflect the whole. The ECB says it is driven by temporary factors such as higher fuel prices. Core inflation excluding food and oil is only 0.9%. On that basis, Lagarde argues that inflation is still well below the expected target.
The ECB figuratively keeps interest rates and major stimulus programs unchanged. The ECB has bought 1.85 trillion euros in government and corporate bonds to stimulate the eurozone economy. On the other hand, the bank's key interest rate benchmarks that influence short -term rates are at their lowest levels.
At this point European concern is focused on the contagion of the Delta variant, which has shown a significant increase in the number of cases in some countries. Economists say vaccination should be intensified in the hope that it can curb the spread and pose risks to the economy. The EU executive commission forecast 4.8% economic growth this year after a 6.5% fall last year.
