ECB’s Kazāks: The central bank brings back inflation to its 2% target
European Central Bank (ECB) policymaker and Governor of the Central Bank of Latvia Mārtiņš Kazāks said during the European trading session on Friday that there is no need to adjust interest rates in the current situation. The ECB will remain vigilant to any dramatic change and will adjust rates if necessary.
Additional comments
We will adjust rates if the current situation changes.
The ECB has fulfilled its inflation target.
US tariff policy not as bad as initially thought.
FX Implication
The impact of ECB Kazāks’ comments on the Euro (EUR) appears to be insignificant. At the time of writing, the EUR/USD trades flat around 1.1635. The major currency pair has been trading sideways since its opening on Friday.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
