ECB sits tight in defiance of inflation

THE European Central Bank (ECB) decided on Thursday to leave interest rates and other monetary policies unchanged at a time when inflation hit a record high.

As central banks in other countries like Britain opt to raise interest rates in a bid to bring down prices, the stubbornly high inflation has exerted mounting pressure on the ECB to tighten its monetary policies.

The euro area annual inflation rose to 5,1 percent in January after hitting a record high of 5 percent in December last year, the statistical office of the European Union announced on Wednesday.

The inflation in the euro area started to rise markedly since August 2021.

It soared 3,4 percent in September, 4,1 percent in October, 4,9 percent in November and 5 percent in December.

The inflation in January 2022 came as a surprise to market observers who expected the growth to slow down because supply chain restraints, which are considered as the overriding drivers of price hikes, have shown signs of easing.

The inflation has a further surprise to the upside in January, ECB President Christine Lagarde conceded in a statement on Thursday.

However, being adamant that the inflation will decline in the course of this year, Lagarde believed inflation is likely to remain elevated for longer than previously expected. The ECB has been trying to play down the concern of price hikes but was forced to raise its eurozone inflation forecast in its staff projections.

The ECB put all its monetary instruments on hold on Thursday.

Lagarde said the central bank would wind down its asset purchase programmes according to the plan unveiled in December. Unlike its peers in the United States and other countries who changed their views about the nature of soaring inflation, the

ECB has been relatively tolerant about the soaring inflation in the euro area.

Lagarde has repeatedly argued that hasty moves in response to price hikes could risk putting the brakes on growth.

She explained on Thursday that there has been no sign of the surging inflation translating into faster wage growth in the euro area.

Meanwhile, Lagarde added that the ECB will closely monitor and analyse incoming data, a sign of concern that part of the price hikes could become permanent.

Lagarde took a less dovish tone on Thursday than she did at her previous news conferences.

In reply to a question about rate hikes, she avoided repeating the ECB’s statement that a rate hike is highly unlikely in 2022.

She stressed that the ECB is mandated to keep prices stable in the euro area and there should be no rush into actions.

In a report published before the ECB meeting on Thursday, analysts from ING Bank argued that the needs to confirm its hawkishness. — Xinhua