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The European Central Bank left its key interest rates and its forward guidance on asset purchases unchanged on Thursday, in line with expectations, amid concerns over high inflation.

The Governing Council, led by ECB President Christine Lagarde, left its key interest rate, the main refinancing rate, unchanged at zero, the deposit rate at -0.50 percent and the marginal lending rate at 0.25 percent.
Policymakers expect key interest rates to “remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon,” the bank reiterated.
Further, the Governing Council assessed that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two percent target over the medium term.

“This may also imply a transitory period in which inflation is moderately above target,” the bank reaffirmed.
Eurozone inflation hit a 13-year high of 3.4 percent in September. Core inflation accelerated to 1.9 percent.
Asset purchases under the pandemic emergency purchase programme, or PEPP, will continue with a total envelope of EUR 1,850 billion until at least the end of March 2022 and until policymakers judge that the coronavirus crisis phase is over, the ECB said.
“The Governing Council continues to judge that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the second and third quarters of this year,” the ECB reiterated.
Proceeds from maturing PEPP assets would be continue to reinvested until at least the end of 2023 and the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance, the bank said.

The ECB also reaffirmed that the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilizes at its two per cent target over the medium term.

“While a reduction of asset purchases could be closer than some might think, a rate hike is definitely still far out,” ING economist Carsten Brzeski said.


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