Lessening Quantitative Monetary Support by the European Central Bank

December 16, 2021

The European Central Bank Governing Council left its three main interest rates (a zero percent refinancing rate flanked by a deposit rate of -o.50% and an MLR facility rate of 0.25% unchanged but authorized changes in its quantitative stimulus with the net effect of lessening the degree of accommodation. Projected GDP growth was revised upward, and an even larger upward revision was made to the 2022  inflation forecast to 3.2% from 1.7% predicted back in September. Accordingly pandemic emergency asset purchases will diminish next quarter and end after March. APP purchases will be bumped up in the middle two quarters of 2022 but return to current levels afterward. Officials expect a growth slowdown this quarter to be shortlived but assert that “monetary accommodation is still needed – including net purchases under the APP and our forward guidance on interest rates – for inflation to stabilise at our two per cent inflation target over the medium term.”

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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