ECB keeps rate on hold but lowers inflation forecast

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ECB keeps rate on hold but lowers inflation forecast

The European Central Bank (ECB) announced today that it would keep interest rates unchanged in an effort to support the economic recovery amidst the ongoing pandemic. However, the central bank has revised down its inflation forecast for the Eurozone, signaling concerns over the sluggish pace of price growth.

Unchanged interest rates to provide stability

The ECB decided to maintain its key interest rates, keeping the deposit facility rate unchanged at -0.5% and the main refinancing rate at 0%. This decision aims to ensure stability in the Eurozone’s financial markets and assist the region’s economy in the face of uncertainty caused by the pandemic.

Slower inflation amidst challenges

Amidst the current economic challenges, the ECB downgraded its inflation forecast for 2021 to 1.5%, lowering it from the previous projection of 1.9%. The central bank also revised down its inflation forecast for 2022 to 1.4% from the previous estimate of 1.5%. These adjustments reflect concerns over the persistent impact of lockdown measures and weak demand on price growth within the Eurozone.

Stimulus measures to continue

Despite the downward revision in inflation forecasts, the ECB reiterated its commitment to supporting the Eurozone’s economy. The central bank will continue its pandemic emergency purchase program (PEPP) with a total envelope of €1.85 trillion until at least the end of March 2022, or until the conditions for a sustained inflation path are met.

ECB cautiously optimistic about economic recovery

While acknowledging the challenges posed by the pandemic, the ECB expressed cautious optimism about the Eurozone’s economic recovery. It noted that the vaccine rollout is progressing, which could lead to a gradual easing of containment measures and support the rebound of economic activity in the upcoming months.

Continuous monitoring for any future adjustments

The ECB emphasized that it would closely monitor the incoming data and reassess its monetary policy stance if needed, ensuring that it remains accommodative to support economic recovery and achieve its inflation target. The central bank stands ready to adjust all of its instruments to ensure price stability and foster sustained economic growth in the Eurozone.

Conclusion

In its latest decision, the ECB has kept interest rates unchanged while lowering its inflation forecast for the Eurozone. With ongoing uncertainties surrounding the pandemic, the central bank aims to provide stability and support the region’s economy. The ECB will continue its stimulus measures and closely monitor the economic developments to make any necessary adjustments in the future.

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