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Minutes of the European Central Bank’s (ECB) January meeting showed a commitment to keeping a steady hand on economic stimulus and efforts to help the European economy recover from the impact of the Coronavirus pandemic.
The minutes showed that policymakers believe it will take some time for the stimulus measurements to effectively achieve its target.
“It was argued that monetary policy should keep a steady hand and that the measures that were put in place in December should be given time to take full effect.”
Last month, the ECB decided to maintain interest rates and to keep the current pace of its stimulus measures.
This comes despite expectations for a rise in inflation, as “a temporary boost to inflation should not be mistaken for a sustained increase, which was still likely to emerge only slowly”.
As for the rise in treasury yields, the ECB noted that “not every increase in nominal yields should be interpreted as an unwarranted tightening of financing conditions and trigger a corresponding policy response.”
“What mattered from a monetary policy perspective was the evolution of real rates.”
“The view was held that the governing council should allow real interest rates to decline if financing conditions eased on account of an increase in inflation expectations.”
The Governing Council of the ECB decided in January to leave interest rates unchanged.
In December, the ECB boosted its massive stimulus program to support economic recovery in the European bloc.
The pandemic emergency purchase programme (PEPP) was extended until March 2022
“ECB expects the key rates to remain at their present or lower levels until inflation outlook robustly converge to a level sufficiently close to, but below, 2%,” the policy statement revealed.
“ECB will continue the purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of EUR 1.85 trillion,” it added.
Recently, ECB President Christine Lagarde expressed a positive sentiment towards this year being one of economic recovery from the impact of the pandemic.
“Our hope is that still 2021 is the year of recovery but in two phases and phase one is clearly one that it is still plagued with very high level of uncertainty.”
“The ECB will make sure that financing conditions are preserved at a favorable level.”
It is worth noting that the massive bond-buying and asset purchases are allowing European governments to borrow money at low rates amid increased stimulus spending across the continent and around the globe.
