The European Central Bank revised its guidance on when interest rates might rise, saying it will persist with ultra-loose monetary stimulus until it has solid evidence that it can sustainably hit its new inflation goal.
In the first policy meeting since concluding an 18-month strategy review, the Governing Council said it expects the key rates to remain at their present or lower levels until it sees inflation reaching 2% "well ahead of the end of its projection horizon, and durably for the rest of the projection horizon."
The ECB publishes inflation projections as far as three years ahead, and currently foresees price growth averaging just 1.4% in 2023. That suggests any rate hike is years away.
The Governing Council also said it'll wait until it judges that underlying price pressures will support headline inflation stabilizing at 2% over the medium term, and said that may imply "a transitory period in which inflation is moderately above target."
The revised guidance cements a new strategy concluded two weeks ago, in which the ECB increased the inflation target from just under 2% and acknowledged that it may overshoot. It also vowed to consider factors such as climate change and housing costs in policy.
Officials are showing that they're determined not to reduce support prematurely. The previous guidance had said settings would remain loose until the inflation outlook was "sufficiently close to, but below, 2%."
Current tools were kept unchanged:
- The deposit rate stayed at -0.5%.
- The €1.85 trillion ($2.2 trillion) pandemic bond-buying program will continue at an elevated pace, with a scheduled end date of March 2022.
- The older Asset Purchase Program stays at €20 billion a month.
- The ECB will keep providing long-term loans to banks.
The ECB's promise of continued ultra-loose policy sets it apart from some of the world's biggest central banks. In the U.S., where inflation is running above 5%, Federal Reserve officials are already discussing when to start tapering its stimulus. Some policymakers at the Bank of England have said a reduction in bond buying should be considered soon.
