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February 03, 2022EUROPEAN CENTRAL BANK MONETARY POLICY The European Central Bank announced that key interest rates would remain unchanged at their current levels. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. Recent progress on economic recovery permits a step-by-step reduction in the pace of our asset purchases over the coming quarters. The Pandemic emergency purchase programme (PEPP) will discontinue net asset purchases at the end of March 2022 with principal payments re-invested until the end of 2024. Monthly net purchases of the Asset purchase programme (APP) will decline from current 40 billion euro to 20 billion euro by October and then continue for as long as necessary to reinforce accommodative impact of policy rates. The Governing Council expects purchases to end shortly before key interest rates begin to rise.
Euro area economic growth slowed in Q4 2021 and is likely to remain muted with omicron variant and containment measures. Higher energy costs are reducing the purchasing power of households and business income, which constrains consumption and investment. Material, equipment and labour shortages continue to impact manufacturing production, delay construction projects, and hold back parts of the services sectors. Beyond the near term, growth is expected to rebound strongly in 2022 as improved labour markets will support incomes and spending. Global growth and accommodative fiscal and monetary policy are positives for the outlook.
Euro Area inflation rose to 5.1% in January 2022 and will likely remain high in the near term. Energy prices being the main reason for elevated rate, directly accounting for half of headline inflation growth. Food prices have risen due to transportation costs and fertiliser prices. Underlying inflation measures have risen, but outlook for energy price and bottlenecks should be adding less pressure.
Source: European Central Bank: Monetary Policy Decision, Remarks, Eurosystem staff macroeconomic projection December 2021
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