The European Central Bank in its latest report decided to keep policy with interest rates unchanged on Thursday as expected. The move was taken before an important decision in December on the termination of the pandemic emergency stimulus.
The ECB stressed that they would continue to buy bonds but lower rates this quarter than the previous six months, aimed at reducing borrowing costs while the economy recovers from the pandemic.
At the same time the ECB maintained its guidance to keep interest rates low for years to come. However, this ruling has been challenged among investors as it casts doubt on the ECB’s narrative on inflation.
The ECB's guidelines set a stable or lower rate until inflation rises back to the 2%target. However, based on economic development, this is seen as difficult to achieve because inflation continues to show an increase.
Consumer price growth is expected to reach 4% this year before making a steady decline next year. ECB President Christine Lagarde is expected to reaffirm the ECB’s narrative that inflation in the medium term will remain below target, so that the conditions for next year’s rate hike will not be met.
The market’s focus is now on Lagarde’s speech.
