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The European Central Bank (ECB) will only raise interest rates if it expects inflation to reach the 2 percent target long before the end of its time horizon at the end of 2023.
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The ECB’s new strategy means that it will continue its policy of low interest rates for longer. This is according to a statement released by the central bank on Thursday.
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The ECB says the key rate will remain at current or lower levels until it expects inflation to reach the 2 percent target long before the end of its time horizon. That time horizon now runs until the end of 2023.
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So far, the message has been that interest rates will remain at current or lower levels until the inflation outlook converges towards the inflation target over the time horizon. That target was raised slightly from ‘less than but close to 2 percent’ to ‘2 percent’ for two weeks.
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Nothing will change for the time being for the bond purchase programmes. The EUR 1,850 billion pandemic program (PEPP) will run at least until the end of March 2022. In addition, the ECB continues to purchase bonds worth EUR 20 billion each month through its older purchase program APP.
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