The bank’s 25-member board of governors said at its first meeting in 2021 that it would keep the principal refinancing rate at 0 percent, the lowest level ever, and that it would keep the bond-buying program at 1.85 trillion euros (2.25 trillion). Dollars).
He stated that the program is scheduled to continue until the end of March of 2022 at least.
“We doubt that the bank will make any major changes in monetary policy until the second half of this year,” said Andrew Kenningham, chief European economist at the Capital Economics research group.
The Frankfurt-based bank also kept the deposit rate at minus 0.5 percent and the marginal lending rate at positive 0.25 percent.
The meeting comes in light of the slowdown in the distribution of Corona vaccines, and the President of the European Central Bank Christine Lagarde considered that the distribution of vaccines is a key condition for rebuilding economic confidence after the spread of the virus during the past year.
Lagarde warned that the COVID-19 outbreak poses a threat to the eurozone’s return to growth.
“The intensification of the epidemic poses risks to the economic prospects in the near term,” she said during a press conference held after the meeting of the board of governors of the financial institution.
The central bank expects that the euro zone economy, which includes 19 countries, will grow by 3.9 percent this year as it recovers from the global pandemic.
However, there are looming fears that the economic recession caused by the pandemic may extend into this year. The decline in inflation rates in the euro zone to below zero is of concern to the central bank.
And the European Union Statistics Office (Eurostat) announced on Wednesday that inflation remained in December for the fourth month in a row in the negative territory on an annual basis, registering negative by 0.3 percent.
This may increase the chances of the European Central Bank being forced again to extend its stimulus measures in an effort to help raise consumer prices.
The central said that “the Board of Governors is ready to amend all its tools, as needed, to ensure that inflation moves towards its goal in a sustainable manner.”
The European Central Bank is seeking to strengthen monetary support measures to the economy before a rigorous examination to assess the risks arising from continuing restrictions imposed to combat the Covid-19 epidemic and the rise in the euro.
Florian Hensse, an economist at Bernberg Bank, says that the financial institution “is still analyzing the brunt of its decision” to strengthen its monetary measures in order to address the crisis caused by the epidemic.
The Frankfurt-based financial institution has strengthened the “bond purchase program during pandemic emergencies”, its main weapon that it began operating in March to maintain favorable financing conditions and encourage spending and investment, and raised the program’s cost to 1,850 billion euros and extended it to March 2022.
As for its other program to buy back assets, the quantitative easing program approved by the epidemic, it is expected to continue at a rate of twenty billion per month without specifying a time period.
The financial institution will also grant banks new installments of low-cost loans at a time when interest rates have fallen to their lowest levels.
Since September 2019, the European Central Bank has imposed a fee of -0.5 percent on a portion of the liquidity deposited with it, to encourage its redistribution in the form of loans.
Observers agree that the financial institution that has been making great efforts in combating the crisis in the euro area since the start of the outbreak of the Covid-19 epidemic is not facing a pressure situation that forces it to increase the size of its intervention.
But the economist at ING Group, Karsten Berzsky, pointed out that “the capabilities of the President of the European Central Bank, Christine Lagarde, to communicate will be on the line again” when confronting the press as of 13:30 GMT.
Hopes for a rapid economic recovery were thwarted by the emergence of the second wave of the epidemic at the end of last year and the accompanying new restrictions and measures in Europe.
Berzsky said that the European Foundation will announce that risks to economic activity are “tending to recede”.
What fuels fears is the spread of mutated versions of the virus, the consequences of which are not yet clear, and the frequency of distributing the first doses of vaccines is slower than expected.
However, the ECB president believes that growth expectations of 3.9 percent of the eurozone’s GDP will be met in 2021.
Fritzi Koller-Gabe, head of economics at KFV, commented that the European Central Bank wants to “wait to see if the restrictions associated with the epidemic will continue until the second quarter (of the year)” and to show “the extent of their impact on the economic situation”.
Frank Dixmere, director of bond management at Allianz Global Investors, said that with more than a thousand billion euros available for him to spend under the “bond purchase program during pandemic emergencies”, the central bank could “buy the same amount of bonds that it bought. Last year, while the deficit in public budgets is expected to be the lowest.
Bond markets remain stable despite the government crises in Italy and the Netherlands.
This “proves the effectiveness of the European Central Bank’s policy to contain any increase in long-term interest rates,” said Eric Dor, Director of Research at the Institute for Scientific Economic and Management, after that was the reason behind the outbreak of the debt crisis in the euro area at the turn of the millennium.
However, the rise in the euro price causes a dilemma for the European Central Bank, which is unable to push inflation to rise, aiming to reach 2 percent at an annual rate, a level that is considered appropriate to encourage economic activity.
Since the end of February, the single currency has increased by more than 10 percent relative to the dollar. It is imperative that the Frankfurt Foundation assess the extent to which a new increase in the euro rate will necessitate a more aggressive move. A strong euro lowers the cost of imports but makes exports less competitive.
The situation becomes more difficult in light of the negative inflation rate in the euro area witnessed during the period from August to December.
It is expected that prices will rise again in 2021 against the background of an increase in value-added tax in Germany and an expectation of a return to a normal life, but economic experts warn that the effects of this increase in prices will be limited.