ECB: New Forward Guidance To Match Inflation Objective

21 July 2021 | Updated: 21 July 2021

The result of the ECB strategy review on July 8 has heightened the importance of this week’s meeting. The inflation target was changed to a symmetric 2 percent, allowing for a brief deviation. Given the considerable shift, no changes in monetary policy are envisaged in July.

Only minor adjustments to the forward guidance are expected as a result of the new inflation objective. Given the members’ differences in the monetary policy outlook, we are not optimistic about the size of the forward guidance.

At this meeting, ECB President Lagarde has pledged to offer new policy signals, so it should be fascinating. Even though the central bank has been unable to meet its inflation target consistently for the past decade, it boosted it earlier this month. It now wants to show that it is serious about achieving this higher goal.

The ECB’s cautious approach is supported by recent developments in the Eurozone. While the reopening momentum remains strong, the Delta variation is spreading like wildfire and posing a threat to the economy.

Despite massive immunizations, fresh covid outbreaks have recently occurred in Spain, Portugal, and the Netherlands. While the number of hospitalizations and deaths is still modest, mild controls to stem the spread are possible. In reality, new curfews have already been implemented in some parts of Spain.

ECB: Eurozone’s Current Account Surplus – EUR 12 Billion

In May, the eurozone current account surplus was EUR 12 billion, down from EUR 22 billion in April. The current account surplus in the year to May was EUR 310 billion (2.7 percent of Eurozone GDP), up from EUR 228 billion (2.0 percent) a year earlier.

Throughout the financial account, net acquisitions of non-euro area portfolio investment assets by Eurozone residents totaled EUR 950 billion in the 12 months to May. The net acquisitions of Eurozone area portfolio investment securities by non-residents totaled EUR 187 billion.

In other investment, euro area residents made net sales of non-euro area assets of €16 billion in the year ended May 2021 (after net purchases of €382 billion in the year ended May 2020), while their net liability incurrence climbed to €330 billion from €196 billion.

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.