ECB keeps key interest rates unchanged

The European Central Bank (ECB) said on Thursday that it decided to keep the euro area key interest rates unchanged following a regular monetary policy meeting, reported Xinhua.

Eurozone key interest rates will remain at record low levels, with the base interest rate, marginal lending rate and deposit rate unchanged at 0.00 percent, 0.25 percent and minus 0.50 percent, respectively, the ECB said in a statement.

The ECB also said that incoming information confirmed the joint assessment of financing conditions and the inflation outlook carried out at the last meeting in March, when the Governing Council decided to pick up the pace of bond purchases under the Pandemic Emergency Purchase Program (PEPP) over the following quarter.

The Governing Council expects purchases under the PEPP over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year, the ECB said.

The PEPP, first rolled out in March last year and expanded twice thereafter, has a total envelope of 1.85 trillion euros and is set to run until at least the end of March 2022.

"CLOUDED BY UNCERTAINTY"

The near-term economic outlook of the euro area "remains clouded by uncertainty about the resurgence of the pandemic and the roll-out of vaccination campaigns," ECB President Christine Lagarde told a press conference on Thursday.

However, Lagarde also said that looking ahead, progress with vaccination campaigns and the envisaged gradual relaxation of containment measures underpin the expectation of a firm rebound in economic activity in the course of 2021.

Supported by solid global demand, the manufacturing sector continues to recover, Lagarde pointed out, while admitting that the services sector is still being affected by restrictions on mobility and social interaction, although there are "signs of a bottoming-out."

Headline inflation is likely to increase further in the coming months, but some volatility is expected throughout the year reflecting the changing dynamics of idiosyncratic and temporary factors, the ECB chief said. These factors can be expected to fade out of annual inflation rates early next year, she added.

PREMATURE TO DISCUSS PHASING OUT PEPP

Data showed that the ECB's weekly PEPP purchases averaged about 16.9 billion euros in the four weeks following the March meeting, compared to 14.4 billion euros in the first eight weeks this year.

While answering a question about any plan on phasing out PEPP, especially after the Bank of Canada on Wednesday announced by surprise that it will scale back its provincial bond-buying program, Lagarde said the topic was not discussed at this week's meeting and it is just "premature" to discuss any phasing out of the PEPP.

Lagarde said the pace of bond buying is not calendar-based but data-dependent, involving assessment on elements like financing conditions and inflation outlook.

Lagarde referred to an image that she recently used, of an economy "on crutches", one fiscal crutch and one monetary crutch. "We still have a long way to go until we cross the bridge of the pandemic and the recovery is sustainable and solid," Lagarde said.