Despite high prices
ECB leaves key interest rate at zero percent
02/03/2022, 1:50 p.m
Despite persistently high inflation, the European Central Bank is keeping the key interest rate in the euro area at a record low of zero percent. She is also sticking to the bond purchases.
Despite persistently high inflation rates, Europe’s currency watchdogs are maintaining their ultra-loose monetary policy course for the time being. At the first monetary policy meeting of the new year, the Governing Council of the European Central Bank confirmed the key interest rate in the euro area at its record low of zero percent. The central bank is also sticking to the billion-dollar bond purchases, as the ECB announced in Frankfurt.
The ECB has recently repeatedly confirmed its assessment that inflation rates will gradually fall in 2022 – even if this could take longer than initially expected. ECB President Christine Lagarde said just two weeks ago that there are no signs of a dangerous wage-price spiral that could drive up inflation in the long term.
At least at the moment there are no signs that inflation could get out of control as a result, Lagarde said at the time: “On the contrary: we assume that energy prices will stabilize over the course of 2022 (…) and then they will Inflation rates are gradually declining.”
Inflation in Germany falls less than expected
However, inflation is still at a comparatively high level. Contrary to expectations, inflation in the euro zone rose even further in January to 5.1 percent. This is the highest value since the euro was introduced as the common European accounting currency in 1999. In Germany, the annual rate of inflation fell to 4.9 percent at the beginning of the year, but the decline was much smaller than expected. Above all, rising energy prices are fueling the upward pressure on prices.
Comparatively high inflation is worrying consumers. Because higher inflation weakens their purchasing power because they can buy less for one euro than before. Critics accuse the ECB of fueling inflation with its ultra-loose monetary policy, including bond purchases worth billions for years.
At the meeting in mid-December, the Governing Council of the ECB sent the first signal that the flood of money was coming to an end: the ECB will only purchase additional securities as part of its PEPP bond purchase program launched in the corona pandemic until the end of March. However, the central bank continues to invest several billions in government bonds and corporate securities. The general purchase program APP is temporarily increased. Funds from expiring PEPP papers are to be reinvested by at least the end of 2024.
Bundesbank boss holds against it
Lagarde had repeatedly rejected an imminent interest rate hike in the euro area. “We will have new projections in a few months. These could look different, and at that point we will have to look at our roadmap,” Lagarde said recently with a view to the central bank’s new inflation and economic forecasts expected for March. Referring to the central bank’s inflation target, Lagarde emphasized: “We will act as soon as the criteria are met, but they are not met at the moment.” The central bank is aiming for a stable price level with an annual inflation rate of 2 percent for the currency area of the 19 countries. It accepts it if this mark is temporarily exceeded or undercut.
Bundesbank President Joachim Nagel, who has been in office since the beginning of the year, warned when he took office that he “currently sees more of a risk that the inflation rate could remain elevated for longer than currently expected”. Nagel emphasized: “Despite all the uncertainty, one thing is very clear: if price stability requires it, the Governing Council of the ECB must act and adjust its monetary policy course.” Now Nagel took part in the deliberations of the Governing Council for the first time.