EURUSD Analysis: ECB Should Ease Policy to Support Recovery

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ECB policymaker Ignazio Visco said that the European Central Bank should ease its policy to support the economic recovery in the eurozone. In addition, it should isolate its financial markets from higher interest rates in the United States. The ECB will reconsider its policy path next week and adjust it to its new strategy. It says inflation should be allowed to exceed 2% for some time. Especially when interest rates are close to their current level. Visco said the ECB had to keep borrowing costs low despite some temporary spikes in inflation, with prices rising seen well below the level in the years to come.

Financial conditions will remain favourable even if we have signs of price increases above the target set by the central banks, said Visco, the Italian governor of the central bank. The ECB is on track to buy bonds worth 1.85 trillion euros ($ 2.19 trillion). This is part of a pandemic program that should last until March 2022.

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As the economy is now recovering from last year’s shock caused by viruses, some of the more conservative policymakers on the ECB’s board of directors have called for a slowdown in the pace of those purchases. But Visco warned of the risks of the third wave of coronavirus infections. As well as a “market shock” coming across the Atlantic, where bond yields rose along with inflation expectations. “We must avoid reducing the purchase of bonds before the time comes,” Visko said. “I do not expect that monetary policy will be tightened for a more extended period.

The ECB has also committed to keeping rates at record lows until inflation returns to its target. It continues to buy bonds under its regular Asset Purchase Program for as long as necessary.

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