ECB to Change Policy Guidance

Ibeth Rivero

European Central BankEuropean Central Bank President Christine Lagarde recently commented that the bank will be changing its policy guidance in its next meeting to show that reviving inflation is an important goal for the bank.

This implies that the bank is not planning to end its ultra-loose monetary policy anytime soon and that it may even announce that it will tolerate inflation levels over its 2% goal.

"Given the persistence that we need to demonstrate to deliver on our commitment, forward guidance will certainly be revisited," commented Lagarde during an interview with Bloomberg TV. "My sense is that we will continue to be determined by maintaining favorable financing conditions in our economy.”

The current bank's policy guidance says that it will buy bonds if needed, as well as keep interest rates at historical lows until the bank's 2% inflation target is reached.

It is still not clear how exactly the bank's guidance is going to change, though Lagarde commented that the main goal is announcing that the ECB is planning to keep credit conditions easy, reassuring investors in the process.

Just like the rest of the world, the Eurozone economy was heavily affected by the advance of the COVID-19 pandemic. However, now that the economy is reopening, the GDP is set to rebound this year, with an expected growth of 4.8%. Similarly, analysts expect the Eurozone economy to grow by 4.5% next year.

In an attempt to counter the negative effects of the pandemic on economic growth, the European Central Bank decided to continue with its ultra-loose monetary policy stance, following other central banks around the world.

On their behalf, the European Commission decided to launch a stimulus program, which consists of distributing around 750 billion euros among the members over the next six years.  The recovery program, which officially began last year, is expected to be funded by loans obtained in the financial markets, whose burden will be shared by all the members. The EU members plan to repay the debt mainly with tax revenues and member state fees in the upcoming decades.

Italy is expected to be the major beneficiary of this program, and is set to receive 200 billion euros. Spain, Poland and France are also expected to receive a substantial sum. Other countries, such as Luxembourg, will barely receive financial support.

So far this week, the euro dropped by 0.08% against the US dollar, giving up last week’s gains. On Sunday, it remained steady against the greenback, breaking a two-day gaining streak and closing the session at the 1.1873 level.

By 7:04 GMT, the euro fell against the dollar, dropping by 0.09% and falling to the 1.1863 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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