By Geoffrey Smith
Investing.com -- The European Central Bank said it expects to continue buying bonds at an elevated pace over the next two months, re-asserting its determination to steer against expectations of an early tightening of monetary policy due to a spike in inflation in the first half of this year.
The ECB also said it won't raise interest rates until its new goal of a 2% inflation rate is well within reach, and until its Governing Council thinks that underlying price pressures are strong enough to keep it around 2% in the medium term. The new language appears designed to rule out any tightening of policy until a sustained rebound in inflation has already taken place.
The change in the ECB's guidance comes a week after the bank adopted a new inflation target of 2%, something that allows it a slightly higher tolerance threshold for above target inflation. The ECB said that its new approach "may also imply a transitory period in which inflation is moderately above target."
Eurozone inflation rebounded to around the 2% level in the second quarter, but the move was largely due to changes in energy prices, which had collapsed in the early stage of the pandemic last year. By June, however, the headline annual rate of consumer inflation had already eased to 1.9% from 2.0% in May.
There were few other concrete changes to the ECB's policy statement which, like its predecessors, remained guarded and carefully hedged despite President Christine Lagarde's promise after the last meeting of language that would be "crispier" and "straight to the point".
The bank's language on possibly not using all of the resources of its 1.85 trillion euro Pandemic Emergency Purchase Program remained unchanged, and the bank repeated its pledge to keep reinvesting the proceeds from maturing bonds through the end of 2023.
There was nothing in the ECB's press release to suggest that either the overall scope of its bond-buying, or its speed, would change in the near term. While some analysts argue that the bank will have to increase monetary stimulus to reach its new target - after a decade of undershooting its old one - the ECB typically prefers to change policy when it updates its forecasts for Eurozone growth and inflation. The next update is due at its policy meeting in September.