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ECB’s meeting sought to create conditions so prior decisions materialise

© Reuters. FILE PHOTO: European Central Bank governing council member Mario Centeno speaks during an interview with Reuters in Lisbon, Portugal, March 15, 2021. REUTERS/Pedro Nunes

LISBON (Reuters) – The European Central Bank’s Wednesday decision to create new instruments to temper a market rout that has fanned fears of a new debt crisis does not signal a change of rate hike trajectory decided last week, ECB policymaker Mario Centeno said.

Following an unscheduled meeting on Wednesday, the ECB’s governing council said it will be flexible in reinvesting cash maturing from its recently-ended 1.7 trillion euro ($1.8 trillion) pandemic support scheme and would consider a fresh instrument to be devised by staff. [nL1N2Y20BH[

The meeting was prompted by a sell-off in bonds issued by heavily indebted countries such as Italy, Spain or Greece on concerns interest rate increases flagged by the ECB last week would make their finances unsustainable.

Talking to reporters in Lisbon, the Portuguese central bank governor and ECB policy council member said Wednesday’s decisions would not affect the interest rate path.

“Today’s ECB meeting was about the new instruments.. and not a change of course of trajectory, but about creating the conditions so that the ECB’s decisions made last week can materialize,” Centeno told reporters.

He reiterated keeping inflation close to 2% in the medium term remained the ECB’s main objective.

“The policy will always be adapted to inflation in the euro, but it seeks to have an effect in the medium term and not so much to respond to short-term shocks,” he said.

“There is, at this moment, no material evidence of de-anchoring the expectations of inflation in the medium term and it is for the medium term that monetary policy works.”

He said the ECB was working hard to anchor inflation expectations given the risk of low growth and high inflation even though the “second-round effects”, when inflation drives up wages and in turn further cost increases, have not materialized.

“What mostly keeps us away from a stagflation scenario, at the moment, is the resilience that we are having in our labour markets,” he said.

ECB’s meeting sought to create conditions so prior decisions materialise

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