MercoPress. South Atlantic News Agency

ECB keeps interest rates at historic low and pledges to step up bond buying

ECB President Christine Lagarde said that increases in market interest rates pose “a risk to wider financing conditions”

The European Central Bank (ECB) on Thursday kept interest rates at historic lows and said it was stepping up its bond-buying stimulus in the coming months. The steps are aimed at halting what is regarded as a premature rise in borrowing costs in the 19 countries that use the Euro currency.

The bank hopes to keeping credit flowing to encourage spending and investment.

“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon,” the ECB said in a statement

ECB President Christine Lagarde spoke at a news conference in Frankfurt, saying that increases in market interest rates pose “a risk to wider financing conditions.” She further elaborated on the ECB's monetary policy decisions announced on Thursday.

• The European Central Bank expects the Euro zone to contract during the first quarter of 2021.
• She warned of “continuing uncertainty for the Euro zone in the near future.”
• The bank expects the currency bloc to post “a firm rebound” in activity with the economy expanding by 4% this year.
• The ECB expects the Euro zone economy to grow by 4.2% in 2022.
• Lagarde said that the bank was not in the business of managing bond yield movements, and that its actions were aimed at maintaining economically favorable financing conditions.

“We are not doing yield curve control,” she told journalists, after the bank moved to “significantly” step up the pace of its pandemic bond buys.

The ECB chief added that a rise in market borrowing rates, “if left unchecked, could translate into a premature tightening of financial conditions for all sectors of the economy. This is undesirable.''

The bank also lifted its inflation estimates for 2021 and 2022, primarily due to ”temporary factors” linked to the pandemic and higher energy prices, Lagarde said. The ECB increased its inflation estimate for this year to 1.5%, compared with 1.0% in its previous quarterly forecasts.

The ECB is the monetary authority for the 19 EU member states that have joined the common currency, and plays a role similar to that of the US Federal Reserve, the Bank of Japan or the Bank of England in the UK.