ECB Economic Bulletin: Will make sure that inflation returns to its 2% target over medium term

In an Economic Bulletin article published on Thursday; the European Central Bank (ECB) underscored challenges to the economy from higher inflation.

Additional takeaways

The Governing Council will make sure that inflation returns to its 2% target over the medium term.

 The June 2022 Eurosystem staff macroeconomic projections for the euro area foresee annual inflation at 6.8% in 2022, before it is projected to decline to 3.5% in 2023 and 2.1% in 2024 – higher than in the March projections. 

Russia’s unjustified aggression towards Ukraine continues to weigh on the economy in Europe and beyond.

This outlook is broadly reflected in the Eurosystem staff macroeconomic projections, which foresee annual real GDP growth at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024.

 the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting.

Looking further ahead, it expects to raise the key ECB interest rates again in September. The calibration of this rate increase will depend on the updated medium-term inflation outlook.

Market reaction

EUR/USD is extending its decline, as the US dollar gains the upside traction on risk-off sentiment-led by recession fears. The pair is losing 0.76% on the day, currently trading at 1.0481.