European Central Bank Press conference comparison — 10 June 2021 vs 22 July 2021
This European Central Bank press conference comparison covers 10 June 2021 and 22 July 2021. Overall, the newer document was more dovish. The ECB reinforced its accommodative posture by introducing a more explicit outcome-based forward guidance that ties rate hikes to sustained realized inflation, effectively delaying any tightening. The next decision will likely see PEPP purchases continued at elevated pace and rates unchanged.
What changed
More dovish. The ECB reinforced its accommodative posture by introducing a more explicit outcome-based forward guidance that ties rate hikes to sustained realized inflation, effectively delaying any tightening. The next decision will likely see PEPP purchases continued at elevated pace and rates unchanged.
- Inflation — Little changed. Both documents characterize the current inflation rise as largely temporary with forecasts declining next year; the current document adds acceptance of moderate overshoot but no material shift in stance.
- Labour Market — Little changed. Prior document highlighted low wage pressures and slack; the current document omits labour market discussion, but no explicit rhetorical shift is evident.
- Rate Path — More dovish. Prior guidance was conditional on inflation outlook convergence; current guidance shifts to outcome-based conditionality requiring inflation to reach 2% well ahead of projection horizon and durably, signaling prolonged accommodation and patience.
- Balance Sheet — Little changed. Both documents maintain PEPP at a significantly higher pace and express commitment to preserving favourable financing conditions; risk balance remains broadly balanced.
Key wording
Inflation has picked up over recent months, largely on account of base effects, transitory factors and an increase in energy prices. It is expected to rise further in the second half of the year, before declining as temporary factors fade out.
a sustained rise in market rates could translate into a tightening of wider financing conditions that are relevant for the entire economy. Such a tightening would be premature and would pose a risk to the ongoing economic recovery and the outlook for inflation.
We will keep the key ECB interest rates unchanged. We expect them to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year.
Overall, we see the risks surrounding the euro area growth outlook as broadly balanced.
Headline inflation is likely to increase further towards the autumn, reflecting mainly the reversal of the temporary VAT reduction in Germany. Inflation is expected to decline again at the start of next year as temporary factors fade out and global energy prices moderate.
Inflation was 1.9 per cent in June. We expect inflation to increase further over the coming months and to decline again next year. The current increase is largely being driven by higher energy prices and by base effects from the sharp fall in oil prices at the start of the pandemic and the impact of the temporary VAT reduction in Germany last year. By early 2022, the impact of these factors should fade out as they fall out of the year-on-year inflation calculation.
We see the risks to the economic outlook as broadly balanced.
the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.
The Governing Council expects the key ECB interest rates to remain at their present or lower levels until – and that's when it begins to be important – we see inflation reaching 2% well ahead of the end of our projection horizon.
Any worsening of the economy could therefore threaten their financial health, which could trickle through to the quality of banks’ balance sheets.
The current rise in inflation is expected to be largely temporary.
Official documents
Background reading
Related
10 June 2021 press conference · 22 July 2021 press conference · Earlier meeting · Later meeting · Previous comparison · Next comparison · Methodology
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