ECB Accounts: Inflation expected to hover close to target of 2% for remainder of year
The accounts of the European Central Bank's (ECB) April policy meeting showed on Thursday that policymakers had increased confidence that inflation would return to target in line with the March baseline projections.
Key takeaways
"Uncertainty, the appreciation of the Euro and the decline in oil and gas prices, would further dampen the inflation outlook in the near term."
"Over the medium term, the picture for inflation remained more mixed."
"Wage growth had been slowing further – slightly faster than expected."
"Credit growth increasing somewhat more strongly than had previously been expected."
"Market-based indicators pointed to a tightening of financial conditions."
"Inflation was expected to hover close to the inflation target of 2% for the remainder of the year."
Market reaction
This publication failed to trigger a noticeable reaction in EUR/USD. At the time of press, the pair was down 0.23% on the day at 1.1305.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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