The European Central Bank Unchanged, But Will Express Concern

Financial markets await today’s ECB decision on interest rates alongside other monetary policy issues. Markets expect the ECB to remain unchanged.

The European Central Bank will leave interest rates and the asset purchase program unchanged but is expected to speak of a strong recovery after the Corona pandemic while expressing concerns about the impact of restrictions on economic growth in the near term.

 ECB President Christine Lagarde may have expressed confidence that banks’ outlook for December remain valid, and may do the same today, despite tightening restrictions in France, Germany and the Netherlands recently.

Although no change is expected today, the European Central Bank has clearly demonstrated its willingness to change policy when needed to support the European economy.

In any case, this meeting is an opportunity to meet the communication challenges ahead. On one side, a temporary spike in inflation later this year will rekindle the debate over the duration of the special measures. Last week, Isabelle Schnabel warned that rising prices with the reopening of certain sectors should not be confused with the continuing increase in inflation.

The big question is whether ECB President Lagarde will jawbone the euro. Last week, she said, “We monitor very carefully the FX movements, don’t target it.” The strong euro is a problem but keeping the door open to more asset purchases if there’s further weakness could in many ways achieve the same goal of easing demand for the currency.