ECB sticks with policy on interest rates

Stimulus will continue to be curbed over coming months

The European Central Bank kept policy unchanged as expected on Thursday, curbing stimulus over the coming months but maintaining plenty of support for the economy even after inflation unexpectedly hit a fresh record high.

After the ECB extended support measures only in December, policy change was not expected to be on the agenda. But stubbornly high inflation – which rose to 5.1 per cent last month in the 19-country euro zone – is complicating life for the bank and ECB president Christine Lagarde will be under pressure to address the issue in her lunchtime news conference.

Making only the smallest change to its statement, the ECB removed a clause stipulating that its next policy move could be in “either direction”.

"The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2 per cent target over the medium term," the ECB said.


Price stability

“Flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability,” it added.

The ECB has long argued that inflation will soon abate without its intervention and actually fall below its 2 per cent target by the end of the year, so that withdrawing support now would be counterproductive. But a growing number of policymakers question this narrative, especially since the ECB has persistently underestimated the current spike, forcing it to repeatedly revise its forecasts.

Separately, the Bank of England raised UK rates on Thursday. – Reuters