Europe’s monetary authorities continue to keep interest rates at zero percent in the euro area. At its first rate meeting this year in Frankfurt on Thursday, the Governing Council also confirmed the central bank’s monthly bond purchases of EUR 20 billion.
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For years, the European Central Bank has been trying to boost the economy in the euro area with a flood of cheap money and drive inflation towards the central bank’s target. The main goal of the currency keepers is stable prices in the euro area. The central bank is aiming for an annual inflation rate of just under 2.0 percent in the medium term with its 19 countries – far enough from the zero mark.
Permanently low or falling prices across the board could entice companies and consumers to postpone investments. That can slow down the economy. According to the latest figures from the Eurostat statistics office, consumer prices in the euro area in December were 1.3 percent higher than in the same month of the previous year.
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A discussion has begun under Christine Lagarde, President of the ECB since November 1, whether it would not be more sensible for the central bank’s ability to act to set a corridor as the target for the inflation rate.
Lagarde was open to the arguments for a strategic realignment: “We will turn every stone.” Results should be available by the end of this year. The ECB plans to release details of the review on Thursday afternoon.
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Even before taking office in Frankfurt, the then head of the International Monetary Fund (IMF) had promised to take a closer look at the side effects of monetary policy, which had been ultra-relaxed for years. Lagarde also reaffirmed in the new office that she considered a very loose monetary policy to be necessary for the foreseeable future.
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The low interest rate is bothering banks because banks still have to pay 0.5 percent interest to the ECB for parked funds. The consequences of this are also felt by the owners of savings books and overnight accounts, who basically no longer pay interest. If you hoard a lot of money at the bank, you can even face negative interest rates. Borrowers, on the other hand, benefit from comparatively favorable conditions.
Especially in Germany, Lagardes predecessor Mario Draghi was teased with his course. Lagarde has therefore also decided to better explain the measures taken by the central bank. “We will be open, transparent and accessible. We will try to speak a language that everyone understands. And we will listen and listen to the concerns and concerns of citizens,” the French promised last week at the New Year’s reception the city of Frankfurt.
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