Economy: ECB President concerned about rising covid infections
Friday, 23 July 2021
The Euro dipped slightly vis-à-vis the dollar following the announcement by European Central Bank President (ECB), Christine Lagarde, that the Bank will maintain its accommodative monetary policy and not reduce debt purchases.
The Euro to US Dollar exchange rate now stands at 1.18.
There had been some expectations amongst analysts that the ECB’s emergency bond-buying program (PEPP) would be reduced. Under the pandemic emergency purchase programme which is currently set to last until March 2022, the ECB is purchasing some 20 billion euros of debt a week to support the eurozone’s economic recovery.
The total budget of the programme amounts to 1.85 trillion euros. However, the ECB could choose to end it before the scheduled end date.
Lagarde said that the increase in coronavirus infections was “a source of growing uncertainty” for the eurozone economy. It is the main reason for why no decision of a PEPP reduction was made.
“Obviously, many other central banks are raising the possibility of discussing the reduction of these purchases, but the fact that the ECB has not mentioned this at all, confirms that monetary tightening is not coming soon,” analyst Kathy Lien from BK Asset Management commented on the ECB’s press conference Thursday.
“In one word, the ECB is currently the most ‘dovish’ out of all central banks, which is the reason the Euro dipped,” she added, referring to bank’s strategy of stimulating job creation rather than controlling inflation.
The eurozone annual inflation rate in the euro zone fell slightly in June, to 1.9%, after reaching 2% in May.
All eyes are now set on the American Central Bank’s (Fed) meeting on Tuesday and Wednesday next week, as currency traders are banking on a Fed monetary policy normalisation, given the US’ healthier economic recovery.