ECB leaves key rates unchanged in July monetary policy meeting, as expected
ECB announces their latest monetary policy decision - 22 July 2021
- Prior decision
- Deposit facility rate -0.50%
- Main refinancing rate 0.00%
- Marginal lending facility 0.25%
- Interest rates have been close to their lower bound for some time and medium-term outlook for inflation is still well below ECB's target
- As such, ECB has revised forward guidance on rates to underline commitment to maintain accommodative monetary policy stance
- Expects rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon
- This may also imply a transitory period in which inflation is moderately above target
- PEPP and QE purchases will continue at current pace
- Full statement
The change to the forward guidance is expected but it isn't so much so different as compared to the previous passage as seen in the June meeting and the many ones before. But the key one is that they did provide some view and thought process in that they will accept a overshoot in inflation above 2% - at least that is the case for now.
That promises to keep rates lower for longer, and at least it will ensure a more accommodative policy stance, if inflation pressures do push higher in the months ahead.
The euro does see a bit of a whipsaw on the decision between 1.1788 and 1.1813 but is settling back closer to 1.1800 now against the dollar.
No changes to overall policy settings for now. As such, there isn't much for the euro to work with on the balance of things. But at least it does provide some fresh insight into the ECB's thoughts on inflation and the outlook.
That said, I would expect reports to leak of some dissent and division among policymakers on the part of an inflation overshoot in the statement.