MARTIN LAMBERTS
This was decided by the Council of the European Central Bank (ECB) in Frankfurt on Thursday. At the same time, the central bank reaffirmed its readiness to adjust all of its instruments if necessary. Economists expect that the increasing number of infections and the associated restrictions on public life could delay the expected economic upturn.
In the fight against the economic consequences of the corona pandemic, the ECB has launched a particularly flexible emergency purchase program for government bonds and corporate securities (Pandemic Emergency Purchase Program / PEPP). The program, which is now worth EUR 1.85 trillion, will run until at least the end of March 2022.
The central bank confirmed that it wanted to accelerate the pace of securities purchases in the current quarter. The reason for this is that capital market interest rates rose at times, which makes financing households and companies more expensive and threatens to put a strain on the economic recovery.
The purchases help states and companies alike: They do not have to offer such high interest rates for their securities if a central bank is the big buyer in the market. This is particularly important for states because during the Corona crisis they launched rescue programs worth billions that need to be financed.
In terms of interest rates, the rate also remains unchanged: the key interest rate in the euro area is kept at a record low of zero percent. Commercial banks still have to pay 0.5 percent interest when they park money at the central bank. Exemptions for certain sums are intended to relieve the institutes of the costs.
The ECB is aiming for a balanced price level with a medium-term rate of inflation of just under 2.0 percent in the common currency area. Persistently low prices are seen as a risk to the economy: companies and consumers could then postpone investments in the hope that it will soon become even cheaper. However, despite zero interest rates and the various bond purchase programs that have been running since March 2015, the target value for the inflation rate has not been achieved for years.
Inflation had recently picked up in the euro area. According to the latest information from the European Statistical Office, consumer prices in March were 1.3 percent higher than a year earlier. In the previous month, the rise in the rate of inflation was 0.9 percent.
So far, however, leading representatives of the central bank have not seen any signs of a permanent rise in inflation, but instead see the latest jump as a result of one-off effects. They refer, among other things, to the rise in the price of oil and the expiry of the temporary VAT cut in Germany at the turn of the year.
“That makes a difference, but only for a short time,” said ECB director Isabel Schnabel recently to “Spiegel”. According to Schnabel, inflation is likely to fall again in 2022 because overall economic demand will likely remain weak.