Monetary policy European Central Bank maintains monetary stimulus – Governor Lagarde warns of new risks

The Governing Council’s monetary policy council also did not change interest rates.

European on Thursday, the central bank’s council decided, in line with expectations, to keep the monetary stimulus unchanged. It also means that the policy rates were not changed.

The interest rate on the main refinancing operations remains at 0.00 per cent, the interest rate on the marginal lending facility at 0.25 per cent and the deposit rate on banks at -0.50 per cent.

The Governing Council expects key interest rates to remain unchanged or lower until the inflation outlook returns firmly close to just under 2% and developments are consistently reflected in core inflation. The effect of energy and food on the change in price levels has been removed from core inflation.

Director general Christine Lagarde assesses at the press conference that the worsening of the coronavirus pandemic is also a risk for the euro area economy.

“Production is likely to contract in the fourth quarter of 2020, and the increase in the pandemic poses some downside risks to the short-term economic outlook.”

Director-General Lagarde also stressed that industrial production in the euro area will continue to recover, but that state-imposed restrictions to curb the pandemic will continue to put a heavy strain on service sectors.

In December central bank increased the emergency funding it started because of the pandemic EUR 500 billion to EUR 1 850 billion. At the same time, it announced that emergency funding will last at least until the end of March next year. That means it will take at least a good year for the economy to return to a more or less normal state.

In any case, the central bank intends to continue buying until it considers that the crisis phase of the coronavirus pandemic is over.

In December, the central bank also announced that it would continue to purchase securities in the amount of EUR 20 billion per month, which began in a separate purchase program in autumn 2019.

Originally In the emergency funding and separate purchase program launched in March, the euro area central banks buy mainly euro area bonds from the market. By buying securities, the central bank increases the money supply.

The sellers of the securities are banks and investors who receive central bank money in return. It will allow them to increase their other investment and increase their lending to businesses and households.

The central bank reiterated on Thursday that it remains ready to use all means at its disposal to bring inflation back closer to its price stability target in a sustainable manner. According to the price stability target, the inflation rate should be slightly below 2% over the medium term.


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