The European Central Bank held interest rates at their record-low level and kept bond-buying steady on Thursday, taking a breather after increasing support to the coronavirus-ravaged
The ECB's governing council kept its main deposit rate at -0.5%, meaning banks are charged to keep money with the central bank, encouraging them to lend it out.
After increasing support last month, the ECB kept its key bond-buying scheme - the pandemic emergency purchase programme (PEPP) - at €1.85 trillion ($2.25 trillion).The euro was up 0.3% against the dollar in the wake of the decision, to $1.214.
Read more: Goldman Sachs reveals the 8 'green-energy majors' that are set to jump in value in a sector worth trillions of dollars as the renewables race heats upAnalysts expected the ECB to hold fire at its January meeting after it ramped up its bond-buying programme by €500bn in December and pushed back the end of the PEPP until at least March 2022.
Coronavirus cases have surged across Europe since the autumn, forcing countries to lock down their economies once again. Germany on Tuesday extended its lockdown until the middle of February and introduced stricter rules. At a press conference following the decision, ECB president Christine Lagarde said new cases and restrictions "have likely led to a decline in activity in the fourth quarter of 2020 and are also expected to weigh on activity in the first quarter of this year".Yet she said the Bank's monetary policy is currently "very accommodative". And she stressed there were a number of "positives" including the rollout of vaccines, the Brexit deal, and the agreement of the €750 billion EU recovery fund.
Lagarde said inflation is likely to "remain subdued" for the foreseeable future due to weak demand, low wage pressures, and the rise in the
Jai Malhi, strategist at JPMorgan Asset Management, said: "The ECB held policy steady today, hoping that its measures implemented in the December meeting alongside the EU recovery fund rollout, will be enough to support the economy until the outlook brightens.
"There is no doubt however that Lagarde faces a daunting task in returning inflation to [the 2%] target from its current lull. The recent strength of the euro could make that task even harder.Claus Vistesen of consultancy Pantheon Macroeconomics noted that Thursday was the first time the ECB had officially said it may not use all of the PEPP.
"This is a slight hawkish tilt in the communication, and also one which could become a target for"After all, the ECB is now saying that if yields remain as low as they are now, there isn't a reason to deploy the PEPP in full. We wouldn't put it past markets to test the central bank on this."
Yet Vistesen noted that Lagarde also said the ECB could expand the PEPP if necessary.Copyright © 2021. Times Internet Limited. All rights reserved.For reprint rights. Times Syndication Service.
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