ECB remains on ultra-loose course despite rising inflation

Frankfurt / Main (dpa) – Europe’s monetary authorities are sticking to their course of cheap money despite rising inflation rates.

The Council of the European Central Bank (ECB) will not decide how to do it until December continues with the billion dollar bond purchases. ECB President Christine Lagarde had already announced this.

An end to the low interest rates in the euro area is still not in sight. At its meeting on Thursday, the Governing Council left the key interest rate for the currency area of ​​the 19 countries at the record low of zero percent. The interest rate has been at this level since March 2016. Commercial banks still have to pay 0.5 percent interest when they park money at the central bank in Frankfurt. But the PEPP (Pandemic Emergency Purchase Program) purchase program launched to cushion the corona shock should run until at least the end of March 2022. In this context, the ECB has estimated 1. 85 trillion euros for the acquisition of government and corporate papers.

Critics accuse the ECB of having a lot of cheap money to fuel inflation, which it actually wants to keep in check. A higher rate of inflation weakens the purchasing power of consumers because they can then buy less for one euro than before.

For months, inflation in Germany and in the euro area as a whole has only been in one direction: up . In September, the rate of inflation in the currency area climbed to 3.4 percent. This is the highest level in 13 years. The ECB is aiming for an annual rate of two percent for the euro area in the medium term.

“We know that a sustained expansionary monetary policy has negative side effects that increase over time,” the head of the Belgian recently warned Central bank, Pierre Wunsch. “I advocate a gradual exit from the current mode,” said Wunsch, who co-decides on monetary policy in the Governing Council, the “Wirtschaftswoche”.

Leading ECB representatives explain the rise in consumer prices Special factors such as the recovery in oil prices after the corona shock last year. The return to the usual VAT rates in Europe’s largest economy, Germany, on January 1st 2021 also has an effect on inflation in the euro area.

Lagarde had emphasized the economy at the end of September In the euro area, after the corona shock, monetary policy continues to need support: “The economy has bottomed out, but is not yet completely over the top.” The rapid upswing after the end of the restrictions to contain the pandemic also explains the comparatively strong increase in inflation rates recently. It was primarily a “phase of temporary inflation in connection with the reopening,” said Lagarde.

One of the critics of the ultra-loose monetary policy will be absent from the Governing Council in the future: Jens Weidmann is leaving his office as Bundesbank President after a good ten years to 31. December 2021 prematurely and thus also retires from the highest decision-making body of the ECB. It has not yet been decided who will lead the Deutsche Bundesbank in the future.

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