ECB leaves rates unchanged as expected
The European Central Bank left key interest rates unchanged on Thursday, as it said the pace of asset purchases under its Pandemic Emergency Purchase Programme (PEPP) would be "moderately lower".
The Bank left the main interest rate at 0%, while the deposit rate was kept at -0.5%, in line with consensus expectations. The marginal lending facility rate was also unchanged, at 0.25%, in line with consensus.
The ECB said the pace of its asset purchases under the PEPP would be moderately lower than the €80bn a month level in September. It confirmed the overall size of the programme - which is due to end in March next year - at €1.85 trillion.
The Bank’s President, Christine Lagarde, insisted this was not tapering, but rather that the ECB was "recalibrating" like it did in December and March.
"The governing council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its two per cent target over the medium term," the ECB said.
Data released earlier this month by Eurostat showed that eurozone consumer price inflation increased to 3.4% in September from 3.0% in August, in line with the initial estimate. The increase was attributed mainly to a 17.6% jump in energy prices on the year. The cost of food, alcohol and tobacco also contributed, up 2%.
Commenting on Lagarde's comments during her press conference, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, expressed surprise at the apparent disconnect between the ECB chief's remarks and the reaction in financial markets.
"Granted. Ms. Lagarde’s comments suggest that the ECB has folded on the idea that inflation is transitory, opting for the idea that high inflation will “last longer than initially expected”," Vistesen said.
But as he himself pointed out, the ECB still believed that inflation would eventually ease over the course of 2022, a view with which he agreed.
"The easy way to solve this disconnect is to conclude that markets simply don’t believe the ECB’s view on inflation, nor for that matter the view taken by the consensus.
"That’s fine, and we are always wary discounting a sustained and powerful signal from bond markets. On this occasion, however, we’re sticking to our view that the current path for EZ rates implied by short-term rate expectations is much too steep."
As of 1725 BST, euro/dollar was jumping 0.70% to 1.1684, alongside a four basis point rise on 10-year German Bund yields to -0.133%.