Monetary policy The European Central Bank will announce its monetary policy decisions on Thursday – It is noteworthy how it assesses the development of the euro area economy

What is certain is that the central bank will not start fighting inflation on the basis of one or more months alone.

Eurozone the strong economic recovery and accelerating inflation raise questions about whether the European Central Bank (ECB) will announce on Thursday a possible slowdown in monthly market purchases of securities.

It is possible, but in the market it is considered unlikely. In March, the ECB decided accelerate purchases to ensure that financial conditions are conducive to recovery.

After the beginning of the year, the economic recovery is then proactive indicators clearly strengthened.

Another important question is how the ECB estimates in its new economic forecast to be published on Thursday that the euro area economy will develop in the coming years.

Inflation that is, the general rise in prices accelerated in May at the European Union’s statistical office Eurostat preliminary data 2.0%, mainly due to higher crude oil prices.

Read more: Accelerating inflation could crush the global economy, and investors are scared

The European Central Bank’s price stability target calls for inflation to be slightly below 2% over the medium term. However, nowhere is it defined exactly what the medium term means.

Instead of actual inflation, the Monetary Council closely monitors inflationary pressures in the market, but also core inflation, which has been decoupled from energy and food. According to Eurostat, core inflation was 0.9 per cent in May.

Sure is that the central bank does not take action against inflation on the basis of one or more months alone. As early as March, the central bank estimated that inflation would accelerate temporarily as demand in the economy increased after the lifting of business and movement restrictions.

According to the ECB’s March forecast, inflation in the euro area will accelerate to 1.5% this year, but will slow to 1.2% next year. At the end of April, the US financial company Citigroup estimates that the inflation rate in the euro area will accelerate to 1.7 per cent this year, but will slow to 1.3 per cent next year.

Accelerating Despite inflation, the ECB has announced that emergency funding is expected to last at least until the end of March next year.

In addition, it has made it clear that the policy rates will only be changed after the purchase of securities in another program has been completed.

In March 2020, due to the coronavirus pandemic, the central bank launched emergency financing, with which it sought to ensure that banks could give and businesses as well as households get loans. The emergency funding ceiling was increased last year from the original € 750 billion.

Set investors and economists have been concerned about the sharp rise in inflation in the United States, where the economy is recovering much faster than in the euro area.

Stateside inflation picked up in April To 4.2 percent. The International Monetary Fund estimates that the U.S. economy will grow 6.4 percent this year and the eurozone economy 4.4 percent.

According to several forecasts, the US GDP, which measures living standards, will grow to the same level as before the coronavirus pandemic this year, but in the euro area only at the end of next year.



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