European Central Bank Keeps Interest Rates at Record Lows
The bank said it would hold interest rates at record low levels while continuing to buy bonds in its pandemic response program.
Despite economic recovery, the European Central Bank keeps its policies steady.
A woman in Munich passing a mural showing traditional Bavarian musicians. Europe’s economy has been reviving from the pandemic.Credit…Matthias Schrader/Associated Press
By Eshe Nelson
June 10, 2021, 8:23 a.m. ET
Even as Europe’s economic outlook is rapidly improving, European Central Bank policymakers decided on Thursday to maintain their “very accommodative” monetary stance.
Governments are lifting lockdown restrictions and the vaccine rollout has sped up, which has led to a bounce in the services industry and “ongoing dynamism” in manufacturing, Christine Lagarde, president of the central bank, told reporters at a news conference in Frankfurt.
“We expect economic activity to accelerate in the second half of this year as further containment measures are lifted,” she said.
But Ms. Lagarde stressed thatlots of support was still needed and that policymakers were giving the economy a “steady hand.”
“Uncertainties remain, as the near-term economic outlook continues to depend on the course of the pandemic,” she added.
The bank said it would hold interest rates at record low and negative levels while continuing to buy bonds in its pandemic response program at “a significantly higher pace” for the next quarter compared with the start of the year — currently, a rate of about 80 billion euros a month.
“The ECB is currently choosing to err on the side of caution rather than withdraw monetary stimulus prematurely,” analysts at ING wrote in a note.
Staff members at the central bank also published new forecasts for economic growth and inflation in the region. The eurozone economy will grow 4.6 percent this year and 4.7 percent next year, they said, compared with forecasts from three months ago that predicted 4 percent and 4.1 percent growth.
In the United States, policymakers are watching rising inflation, which rose 5 percent in May, the fastest annual rate since 2008. Economists say a sustained increase in inflation would force the Federal Reserve to pull back its monetary stimulus. But Ms. Lagarde said the American and European recoveries were “a very, very different story.”
In the euro area, inflation is expected to rise over the next few years, including core inflation, which excludes volatile energy and food prices, but the increase is “largely” a result of temporary factors, the bank said. The central bank does not forecast price gains to rise above its 2 percent target.
Staff projections, which were revised higher since March, point to a 1.9 percent annual inflation rate in 2021 and 1.5 percent rate next year.
In March, the central bank increased the pace of the assets purchases in its Pandemic Emergency Purchase Program, which is scheduled to buy 1.85 trillion euros worth of debt by the end of March. Bond-buying programs are intended to keep interest rates low and smooth access to credit for businesses and households.
Data published earlier this week showed that the eurozone’s economy did not fare as badly in the first quarter as initially expected. Gross domestic product declined 0.3 percent in the first three months of the year, the statistics agency said, not the 0.6 percent decline that was previously estimated.
Ms. Lagarde also said it was too soon for policymakers to even begin discussing when and how it might end its pandemic bond-buying program. “It’s too early, it’s premature, it’s unnecessary,” she said.