UPDATE 5-ECB pledges low rates for longer as virus casts shadow over growth

update 5 ecb pledges low rates for longer as virus casts shadow over growth

Sumary of UPDATE 5-ECB pledges low rates for longer as virus casts shadow over growth:

  • By Balazs Koranyi, Francesco Canepa5 Min ReadFRANKFURT (Reuters) -The European Central Bank pledged on Thursday to keep interest rates at record lows for even longer to boost sluggish inflation and warned that the rapidly spreading Delta variant of the coronavirus poses a risk to the euro zone’s recovery.
  • FILE PHOTO: The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph OrlowskiThe central bank of the 19 countries that share the euro said it would not hike borrowing costs until it sees inflation reach its 2% target “well ahead of the end of its projection horizon and durably”.
  • “We did so to underline our commitment to maintain a persistently accommodative monetary policy stance to meet our inflation target,” ECB President Christine Lagarde told a news conference.
  • The ECB’s previous guidance said it would keep interest rates at current levels until it was happy that inflation expectations were converging to its target, and stop buying bonds for its quantitative easing programme shortly before that.
  • The shift in language was prompted by the ECB’s new strategy, unveiled earlier this month, under which inflation may be allowed temporarily to exceed its target when “especially forceful or persistent” monetary support is needed.
  • “The new forward guidance is consistent with the ECB hiking rates even later than under the previous framework (but) it does not fundamentally change the criteria that will trigger policy normalisation,” said Frederik Ducrozet, a strategist at Pictet.
  • The euro strengthened against the dollar after Lagarde’s news conference while yields on euro zone government bonds fell.
  • COMPROMISEThe change in language was not backed by all ECB policymakers.

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