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The International Monetary Fund said the European Central Bank should stick with its ultra-supportive stance as long as the current bout of surging consumer prices appears to be temporary.
The ECB should keep its monetary policy accommodative and look through transitory inflation pressures and maintain a highly accommodative monetary policy stance with underlying inflation dynamics expected to remain weak over the medium term, according to the Washington-based fund's Staff Concluding Statement for 2021.
The comments chime in with the views of ECB President Christine Lagarde, who insists that soaring prices are due to factors such as energy costs and supply snags that won't endure. In contrast, Federal Reserve Chair Jerome Powell said last week that transitory should no longer be used to describe what is happening.
The IMF cautioned that risks to inflation in the euro area are tilted to the upside and that officials should keep an eye on pay pressures.
The fund said that future wage negotiations will need close monitoring as they are expected to be more frequent than in previous years, after many contract renewals were put on hold during the epidemic. If the inflation proves to be more durable, the ECB should be ready to scale down and then terminate asset purchases and TLTROs. The IMF said the ECB will need to clarify how to keep up monetary support when its Pandemic Emergency Purchase Program and the third rounds of ultra-cheap loan offerings are phased out. The central bank plans to set out the future of its bond purchases at its Dec. 16 decision.
In regards to euro-area growth, IMF Managing Director Kristalina Georgieva said she sees the possibility of a downward revision of economic forecasts for the region due to a fourth quarter that looks weaker given supply snags, high energy prices, and new mobility restrictions due to the Pandemic. The International Monetary Fund predicts 5% expansion for 2021 and 4.3% for 2022 and will publish updated forecasts in January. None The Fall of a Russian Cyberexecutive Who Went Against the Kremlin