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ECB keeps interest rates at record low

by Financial Economy

ECB keeps interest rates at record low. Despite the economic downturn and the increasing number of infections, the ECB is staying on course: the key interest rate remains low, the controversial bond purchase program is being continued. But monetary policy could be even looser as early as December.

ECB keeps interest rates at record low

The European Central Bank (ECB) is keeping further emergency measures open in the corona crisis. For now, both the multi-billion dollar bond purchase program and interest rates will remain unchanged. That is what the Governing Council decided.

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Recently there have been increasing signs that the economic recovery in the euro area is stalling. The corona virus is spreading massively again, and public life is being restricted again in many countries. Many economists assume that Europe’s monetary authorities will step up again in the fight against the economic consequences of the pandemic. The central bank president Christine Lagarde, who has been in office for a year, recently emphasized: “If more has to be done, we will do more.”

In the December meeting of the Governing Council, the ECB could expand its emergency purchase program for government and corporate bonds again. Then the central bank has the latest forecasts on the development of the economy and inflation. So far, the PEPP (Pandemic Emergency Purchase Program) has estimated 1.35 trillion euros until at least the end of June 2021.

The ECB has little leeway when it comes to interest rates. The key interest rate in the euro area has been at a record low of zero percent for four and a half years. Commercial banks have had to pay interest since mid-June 2014 when they park money at the central bank. This deposit rate is currently at minus 0.5 percent. Exemptions for certain sums are supposed to relieve the banks.

According to the Bundesbank’s assessment, the negative interest rates have so far not been a problem for Germany’s banks. However, in a mixture of economic downturn, increasing risk provisioning and shrinking equity buffers, the probability is increasing that a point will be reached at which negative interest rates lose their effect or they turn into their opposite.

With its monetary policy, which has been expansionary for years, the ECB wants to stimulate the economy and come closer to its goal of a stable price level with inflation just below 2.0 percent. Environmentalists accuse the ECB of buying too many securities from companies in its billion dollar bond purchases, which are harmful to the climate. The globalization-critical network Attac therefore called for a demonstration in front of the ECB building in Frankfurt on Thursday.

Source: https://www.spiegel.de/

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