ECB vows to persist with -ve rates in bid to fuel inflation

The European Central Bank revised its guidance on when interest rates might rise to convince investors it won’t withdraw support too hastily and derail the economic recovery.

The move is aimed at strengthening the ECB’S long-running efforts to push up inflation, but it also means policy makers won’t necessarily react immediately if price growth overshoots their target for a period. Not all policy makers were on board with the decision, which followed an 18-month strategy review in which the ECB raised its inflation goal to 2 per cent from just-under 2 per cent. Speaking after Thursday’s announcement, President Christine Lagarde said backing for the change in guidance wasn’t unanimous, though there was an “overwhelming majority” behind it.

The key change to the guidance means that even if inflation is at the target at the end of the ECB’S three-year forecast horizon, officials won’t be forced to respond with tighter policy. The ECB currently foresees price growth averaging just 1.4 per cent in 2023, which suggests any rate hike is years away.

Markets were little changed, with only around 5 basis points of hikes priced in by mid-2023 and about 10 basis points a year later.