Monetary policy Weaker economic conditions and accelerating inflation are increasing the pressure on the European Central Bank: what did Governor Christine Lagarde say on Thursday?

Economy the strongest phase of the recovery in the euro area appears to be over, but rising consumer prices, ie inflation, will continue at a brisk pace.

That’s a nut to crack for the European Central Bank, which will report on its new monetary policy decisions on Thursday afternoon.

Compared to economic growth, the Purchasing Managers’ Index, which reliably forecasts, weakened markedly in October as supply bottlenecks slowed output growth. In addition, the inflation rate in the euro area accelerated in September To 3.4 percent.

According to the central bank’s new price stability target, the inflation rate should be 2% over the medium term. On the other hand, it has repeatedly assessed that the acceleration in inflation is temporary.

Key the question is how long the central bank will continue its purchases of securities to curb the financial damage of the coronary pandemic.

At its previous meeting, the central bank decided to slow down purchases, which is a kind of “overture” to ending them.

Director general Christine Lagarde said in Septemberthat the abolition of securities purchases following the pandemic will be discussed at the Monetary Policy Council in December.

Due to the acceleration of inflation and the slowdown in economic growth, it could at least in principle be possible for the central bank to announce on Thursday when purchases will be stopped.

Financial group OP’s Chief Economist Reijo Heiskanen does not consider it likely that the central bank will announce on Thursday a timetable for the cessation of securities purchases.

“Of course, the business cycle has changed and production bottlenecks are still significant. I believe that the ECB is still waiting for more information on the state of the economy. Another big issue is the rise in wage demands due to accelerating inflation. ”

Heiskanen estimates that attention will be paid on Thursday to how the ECB is formulating its views on the economic downturn.

According to current estimates, securities purchases will last at least until the end of March and in any case until the Council considers that the crisis phase of the coronavirus pandemic is over.

The central bank has also stated directly that the key interest rates will not be changed until the securities purchases are abolished.

In addition to the purchases initiated due to the coronavirus pandemic, the central bank buys EUR 20 billion worth of securities each month in a separate program. In other words, it is very possible that the policy rates will not change next year.

Finance company Nordea’s main strategy Jan von Gerich also does not believe that anything new will be announced on Thursday about the cessation of securities purchases.

“I believe that the closure of purchases will be announced in December, when a new business cycle forecast will also be in use. It is interesting to see what CEO Lagarde says about market estimates that the policy rate will be raised as early as the end of next year. In addition, he will have to take a stand on the rise in inflation expectations. ”