By Laurie Laird
LONDON (MaceNews) – The European Central Bank adopted a more dovish tone after its latest rate-setting meeting, but ECB President Christine Lagarde hinted at a lack of agreement among Governing Council members over interest rate policy.
Adopting new forward guidance in the wake of a policy review unveiled on 8 July, the ECB “expects key rates to remain at their present or levels until it sees inflation reaching two per cent well ahead of [the} projection horizon and durably for the rest of the projection horizon.”
Previous guidance referred to the aim of retaining at “present or lower levels until … the inflation outlook robustly converges to a level sufficiently close to, but below 2% within [the] projection horizon.” The insertion of the words “well ahead of [the] projection horizon,” which extends through 2023, implies a more dovish outlook, although Lagarde stressed that amended guidance does not necessarily suggest that rates “will remain lower for longer.”
However, the ECB president admitted that not all rate setters agreed with that current interest rate policy. While the Governing Council unanimously agreed on the new forward guidance, “a very, very small number of members” dissented over the “calibration of interest rates,” she said, declining to provide further detail.
The ECB left rates unchanged, with the deposit facility remaining at -0.5% at Thursday’s meeting. Pandemic Emergency Purchases will continue “at a significantly higher pace than during the first months of the year,” according to a policy statement, repeating the language of the June meeting. The Council also agreed that the €1.85 trillion PEPP envelope may not necessarily be used in full, but could be recalibrated should circumstances warrant. The long-standing asset purchase programme will continue at a monthly pace of €20 billion.
The Council gave no enhanced guidance on quantitative easing programmes. The revision of forward guidance “was limited to interest rates,” said Lagarde.
The somewhat more dovish tone puts the ECB at odds with other major central banks. Rate setters at the Federal Reserve and the Bank of England have publicly debated the future of large QE programmes with inflation on the rise across the developed world. Eurozone consumer prices rose by an annual rate of 1.9% in June — well below the prevailing inflation rate in the U.S. and the U.K — and the ECB expects to retreat to 1.4% by 2023. The inflation outlook “remains subdued,” said Lagarde, with economic “slack holding back inflationary pressures.”
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Contact this reporter: laurie@macenews.com.
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