ECB to continue with expansionary monetary policy in 2021On July 16, 2021 by Paula Antle
The European Central Bank (ECB) should pursue an ultra-voluntary monetary policy to support the recovery of the euro area economy and isolate its financial markets from higher interest rates in the United States. Ignazio Visco, a member of the ECB’s Governing Council, announced this on Thursday.
The ECB will review its policy next week and align it with its new strategy, which should allow inflation to exceed 2% for a period of time when interest rates are at record lows than at present.
Given that price growth is expected to be well below this level in the coming years, Visco stated that the ECB must keep borrowing costs low despite a temporary recovery in inflation.
“Financial conditions should remain favorable, although we have indications of some price increases that exceed the target of central banks (in the eurozone),” said Visco, who is also the governor of the Italian central bank.
The ECB buys 1.85 trillion worth of monthly bonds as part of a stimulus package to support economies in the fight against the effects of the COVID-19 pandemic. This program is to run until at least March 2022.
As the Euroregion’s economy is already recovering from last year’s shock caused by the pandemic, some more conservative politicians in the ECB’s Governing Council have called for a slowdown in these purchases.
At the same time, Visco warned of the risks of the third wave of the new coronavirus and of a “market shock” for rising bond yields rising along with inflation expectations on the other side of the Atlantic.
The ECB has also pledged to keep rates at record lows until inflation returns to its target, and to continue buying bonds under its regular asset purchase program for as long as necessary.