There is no need for monetary policy adjustments currently as inflationary pressures are approaching the central bank’s 2% target, ECB Governing Council member and Lithuanian Central Bank President Gediminas Simkus said in an interview in Vilnius during the European trading session on Wednesday.
Additional notes
There is no need to change prices as inflation reaches the target.
The data suggests that inflation and GDP risks are fairly balanced.
I feel that the December interest rate decision will not be difficult.
Market reaction
ECB Simcos’s comments are roughly similar to what other policymakers have advised recently. Therefore, it seems that the impact of his statements has no significance on the euro. At press time, EUR/USD is trading 0.12% higher near 1.1640 amid slight weakness in the US Dollar (USD) ahead of Federal Reserve (Fed) monetary policy.
European Central Bank Frequently Asked Questions
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy for the region. The ECB’s primary mandate is to maintain price stability, which means keeping inflation at around 2%. The primary tool for achieving this is raising or lowering interest rates. Relatively high interest rates usually lead to a stronger euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
In extreme situations, the ECB can activate a policy tool called quantitative easing. Quantitative easing is the process by which the European Central Bank prints euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. Quantitative easing usually leads to a weaker euro. Quantitative easing is considered a last resort when simply lowering interest rates is unlikely to achieve the goal of price stability. The European Central Bank used it during the great financial crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and also during the coronavirus pandemic.
Quantitative tightening (QT) is the opposite of quantitative easing. It is implemented after quantitative easing when the economic recovery is underway and inflation begins to rise. While in the QE program the European Central Bank (ECB) buys government bonds and corporate bonds from financial institutions to provide them with liquidity, in the QT program the ECB stops buying more bonds, and stops reinvesting the capital owed on the bonds it already holds. It is usually positive (or bullish) for the EUR.
