ECB leaves interest rates unchanged as it commits to speed up stimulus exit
The European Central Bank has announced it will leave interest rates unchanged at zero per cent today as it breaks rank with central banks that have hiked rates in recent weeks to tame rampant inflation.
Eurozone inflation hit 7.5 per cent in March but the ECB’s governing council said it would only begin hiking interest rates after unwinding a bond buying programme
The ECB said it would cut bond purchases this quarter with plans to end them entirely at some point in the third quarter.
“In the current conditions of high uncertainty, the Governing Council will maintain optionality, gradualism and flexibility in the conduct of monetary policy,” the ECB said.
“The Governing Council will take whatever action is needed to fulfil the ECB’s mandate to pursue price stability and to contribute to safeguarding financial stability.”
Key interest rates will continue to be determined by the council’s forward guidance and its strategic commitment to stabilise inflation at two per cent in the medium term, the bank said.
Economists said the decision came amid a complex and mixed macroeconomic environment.
“On the one hand, eurozone inflation has hit record highs, driven by soaring energy costs, with the Russia-Ukraine conflict pushing prices upwards and unemployment at a record low. On the other hand, growth is moderating and there has been a sharp decline in business sentiment, leading to fears of stagflation,” said Gurpreet Gill, Macro Strategist, Global Fixed Income, at Goldman Sachs Asset Management.
“Despite the risk of stagflation, the ECB stayed focused on the worsening inflationary environment. Policy remained unchanged but the Governing Council confirmed that net asset purchases will conclude in the third quarter.”
The next milestone for the bank would be the rate at which it wins down the asset buying programme in the next quarter, Gill said, with the decision likely to be the focus of the bank’s next meeting in July.