Summary Of ECB Monetary Policy Meeting

Summary Of ECB
Monetary Policy Meeting

The European
Central Bank (ECB) held their monetary policy meeting on Thursday, followed by
a press conference led by President Christine Lagarde. The ECB maintained their
monetary policy unchanged, which includes the interest rates, the pandemic
emergency purchase programme (PEPP), the asset purchase programme (APP), and
the third series of targeted longer-term refinancing operations (TLTRO III).
The ECB also signaled its readiness to adjust its policy appropriately to
ensure inflation move towards its 2% target.

The interest
rates on the main refinancing operations, marginal lending facility, and
deposit facility remain unchanged at 0.00%, 0.25%, and -0.50% respectively. The
ECB commented that rates would remain at present or even lower levels until the
inflation outlook converges to a level near its 2% projection.

The PEPP will
also be continued with a total envelope of €1,350 billion to help ease the
overall monetary policy. The ECB will continue the asset purchases under the
PEPP until at least the end of June 2021, or in any case, until the end of the
coronavirus crisis phase. Principal payments from maturing securities purchased
under the PEPP will be reinvested at least until the end of 2022.

The APP will be
continued at a pace of €20 billion monthly, alongside the additional temporary
€120 billion until the end of this year. The overall monthly asset purchases
under the APP will be conducted as long as necessary, or until the bank decides
to raise its interest rates.

During the press
conference, President Lagarde commented that incoming information from the ECB
suggests a significant rebound in activity, although it remains well below the
pre-pandemic levels. The recovery remains clouded by strong uncertainty towards
the future pandemic situation. The Eurozone domestic demand also recorded a
robust recovery from its low levels despite the strong uncertainty towards the
economic outlook, which weighed on consumer spending and business investment.
Lagarde also mentioned that large monetary stimulus remains necessary to
support the EU’s economic recovery.

The euro was
earlier pressured by concerns that the ECB might address issues associated with
the appreciation of the single currency. However, Lagarde eased market concerns
by stating that the bank does not have a target for the exchange rate. However,
the bank will continue to monitor carefully the impact of the currency
appreciation has on inflation.

The euro
initially gained a modest 1% to the session high of $1.1917 following Lagarde’s
comment. However, gains were pared thereafter following the pressure from a
rising dollar amid increasing Brexit tensions that caused the market’s
preference shift.