European Central Bank maintains support for pandemic | Your money
FRANKFURT, Germany (AP) – The European Central Bank on Thursday decided to keep its pandemic stimulus efforts unchanged even as consumer prices rise and central banks in other parts of the world seek to reduce support as their economies rebound from the worst COVID -19 outbreak.
The ruling affecting the 19 European Union countries that use the euro sets up a debate in December about when and how to end the 1.85 trillion euro ($ 2.14 trillion) stimulus package.
The bond buying program lowered long-term borrowing costs for companies as they resisted closures and for governments as they spent more on pandemic support.
It is expected to run until at least March 2022 – or until the bank considers the crisis phase of the pandemic over – but a recent surge in inflation has sharpened questions as to whether the exit should take place. sooner rather than later.
Bank officials, however, have maintained that much of the recent price spike is temporary. Bank President Christine Lagarde said she would not “overreact” by withdrawing support prematurely as the economy continues to face obstacles related to bottlenecks in parts supply spare parts and raw materials.
The euro-using bloc has yet to reach its pre-pandemic production level, unlike the United States, which has experienced a robust recovery after higher government spending.
Investors and analysts are waiting to hear Lagarde’s take on rising prices and the economy at a press conference on Thursday.
“The trick will be for Christine Lagarde to admit that inflationary pressures have increased but to say that rates are not expected to rise again for a long time,” said Andrew Kenningham, chief economist Europe at Capital Economics.
Annual inflation in the group of countries using the euro hit 3.4% in September, the highest since 2008. But officials and some economists say much of the increase is linked to price comparisons. low during the pandemic, especially for fuel. These comparisons will soon be removed from the statistics.
Central banks typically raise interest rates and reduce stimulus efforts to fight rising prices. But the European Central Bank says it expects inflation to drop to 1.5% by 2023, well below its target of 2%, and market expectations of a slight increase in rates. interest by the end of next year are not in line with its outlook.
Meanwhile, the Bank of Canada decided on Wednesday to suspend its bond buying program, while Brazil’s central bank raised interest rates for the sixth consecutive meeting this week and indicated that rates would continue. to increase.
The US Federal Reserve has indicated that it could announce a reduction in the pace of its monthly bond purchases as early as November, even if interest rate hikes are “premature,” according to President Jerome Powell.
The Bank of England has signaled that it is preparing to raise rates to fight inflation.
The European Central Bank has not changed benchmark interest rates, which remain at historically low levels. The rate on European Central Bank loans to banks is zero, while the rate on deposits left overnight by banks is minus 0.5%, which means banks pay to deposit the money. – a penalty rate aimed at encouraging them to lend the funds instead.
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