Euro Area Interest Rate1998-2021 Data | 2022-2023 Forecast | Calendar | Historical

The European Central Bank revised its forward guidance on interest rates during its July meeting, saying it expects interest rates to remain at their present or lower levels until it sees inflation reaching 2 percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2 percent over the medium term. Also, the central bank retained the pace of asset purchases programme at €20 billion per month, reiterating that the PEPP envelope can be recalibrated if required, while confirming it will be reinvesting maturing PEPP bonds at least through the end-2023.

The European Central Bank is set to pledge to a longer period of monetary stimulus when it meets today. It will be the first meeting since the bank unveiled its new strategy, targeting inflation at 2%, and even allowing it to run higher or lower that level for a brief period. Also, when deciding on monetary policy officials are likely to be more considerate of climate risks and some housing costs. Although no new measures are expected to be announced for now, ECB chief Christine Lagarde signaled "interesting changes" on the bank's guidance that will set the stage for a series of decisions, including the future of the Pandemic Emergency Purchase Programme (PEPP). She has also promised "shorter, crisper" policy statements to facilitate communication.

ECB monetary policy meeting on July 22nd will be an important meeting as the central bank will communicate differently, in a more clear way, and will review its forward guidance to align it with the new strategy, ECB President Christine Lagarde said to Bloomberg. Last week, the ECB announced its first strategy review since 2003, which included a 2% inflation target over the medium term, compared to previous below but close to 2% and the inclusion of climate change considerations in monetary policy operations. Lagarde also said the ECB will continue to maintain sustainable financial conditions and support the economy and that now it's not the right time to talk about an exit strategy.

ECB policymakers discussed a cut in stimulus during the last monetary policy meeting in June, but concluded that financing conditions were too fragile to allow a meaningful reduction in the pace of purchases without risking a disorderly rise in yields, meeting minutes showed. As a result, a slowing of the pace of purchases for the next quarter was seen as inappropriate. The ECB also noted that if the outlook for growth and inflation improves, asset purchases should be scaled back somewhat but also warned that even an increase in asset purchases could be justified if inflation falls short of expectations. The ECB left monetary policy unchanged during its June meeting, saying it expects net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year. It also revised up GDP projections for 2021 and 2022 to 4.6% and 4.7%, respectively.