The European Central Bank left its key interest rate and forward guidance unchanged on Thursday.

The Governing Council left its key interest rates unchanged as expected. The main refinancing rate thus remains at zero, the deposit rate at -0.50 percent and the marginal lending rate at 0.25 percent.

The bank expects the key ECB interest rates “to remain at their present or lower levels until it sees inflation reaching 2 percent… that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2 percent over the medium term.”

As announced in December, the bank said it will discontinue purchasing assets under its Covid-19 pandemic stimulus scheme at the end of March.

The EUR 1,850 billion pandemic emergency purchase programme, or PEPP, was launched in March 2020 to support the euro area economy and financial system amid the risks posed by the disruptions caused by the coronavirus pandemic.

The bank also reiterated its December decision to extend the reinvestment horizon for the PEPP to until at least the end of 2024. Earlier, the reinvestments were set to end at the end of 2023.

The monthly net purchase pace of EUR 40 billion in the second quarter and EUR 30 billion in the third quarter under the asset purchase programme, or APP, were also maintained. Monthly asset purchases under the scheme are currently conducted at EUR 20 billion.

From October 2022 onwards, the Governing Council will maintain net asset purchases under the APP at a monthly pace of EUR 20 billion for as long as necessary to reinforce the accommodative impact of its policy rates, the bank reiterated.

The ECB reaffirmed that net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.

The bank continues to expect net purchases to end shortly before it starts raising the key ECB interest rates.

Eurozone inflation accelerated to a record 5.1 percent in January. Core inflation is also high at 2.3 percent, well above the bank’s target of 2.0 percent.

Economists widely expect the Governing Council to revise its forward guidance in March as inflationary pressures are stronger than expected.

ECB President Christine Lagarde is set to hold the customary post-decision press conference at 08:30 am ET when she is expected admit that euro area inflation, albeit driven by higher energy prices, is now uncomfortably high and to drop hints regarding a possible shift in policy stance in the future sessions.

Capital Economics economist Andrew Kenningham said the chance of a rate hike this year has increased significantly.

“It is quite likely that the ECB will revise its policy plans again in March to prepare for a faster reduction in asset purchases, which would put rate hikes this year on the table,” the economist said.

ING economist Carsten Brzeski expects the ECB to buy more time and to push any changes in monetary policy to the March meeting when a fresh set of macroeconomic forecasts will be available.

“If ECB president Christine Lagarde confirms previous statements that “it is very unlikely that we will raise interest rates in the year 2022″, she would unnecessarily paint the ECB into a corner,” the economist said.

Keeping the doors open for a faster reduction of asset purchases and even a rate hike this year would be a wiser strategy to take, Brzeski added.

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