The ECB voted to keep the interest rate on its main refinancing operations at zero percent today, with the marginal lending facility at 0.25 percent and on the deposit facility at -0.5 percent. Inflation worries also forced the central bank to take action, as the following statement from the ECB detailed: “Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the (PEPP) than in the previous two quarters.”
In a press conference held today, Christine Lagarde, an ECB President, detailed the verdict was a “unanimous decision in all respects.”
The ECB explained interest rates will remain at their current low levels until inflation is seen to be reaching two percent “well ahead of the end of its projection horizon and durably for the rest of the projection horizon.
“This may also imply a transitory period in which inflation is moderately above target,” the ECB continued.
Daniele Antonucci, the chief economist and macro strategist at Quintet Private Bank, commented on the latest ECB Interest Rate Decision.
Shane O’Neill, the Head of Interest Rates at Validus Risk Management, also responded: “As expected, the ECB did not change its main interest rates or the size of its PEPP envelope, which remains at EUR1,850 billion. The PEPP will continue until at least March 2022, but the monthly pace of purchases will be adjusted to a ‘moderately’ slower pace compared to the current EUR80bio/month.
“EURUSD is virtually unchanged on the news and market attention will now turn to the press conference.”
During the press conference, Ms Lagarde evoked Margaret Thatcher in an attempt to assure the market that “the lady isn’t tapering.”
“We are recalibrating, just as we did back in December and back in March. We are doing that on the basis of the framework, which is a joint assessment,” she said.
This news follows on from recent developments from the Bank of England (BoE).
Yesterday, BoE policymakers were questioned by the Treasury Committee on the state of the economy.
When pushed on interest rates, it emerged there was an even split among the central bank’s team.
In August, four of the BoEs policymakers believed the minimum conditions needed for considering an interest rate hike had been met, while four thought the recovery was not yet there.
Felicity Buchan, the Conservative MP for Kensington, pushed on this: “In our discussion on forward guidance and whether the threshold [for raising rates] had been met, you kindly gave us the information it was four to four…,” she said.
“…Do you mind telling us where you stand [today]?”
Andrew Bailey, the Governor of the Bank of England, was the first to respond: “I think we can do that.
“So my view was that the guidance had been met.”
Dave Ramsden, the Deputy Governor for Markets and Banking at the BoE, then responded: “I gave a speech in July where I sort of flagged that I thought the guidance was close to being met.
“And by the time we got to the August round, my view also was that the guidance, which [as you know] was significant progress on eliminating spare capacity and sustainable return of inflation to target, had been met.
“But those were always necessary rather than sufficient conditions for tightening.”
Currently, the BoE has the base rate at 0.1 percent.