The European Central Bank (ECB) is leaving the key interest rate unchanged.

While it has now stopped buying new bonds from the PEPP crisis program, new bonds are to be bought from the older APP bond purchase program until the summer, provided nothing unforeseen happens.

Christian Siedenbiedel

Editor in Business.

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"Some time" after the end of the bond purchases, however, interest rates are to be raised.

The Governing Council announced this on Thursday after its April meeting.

ECB President Christine Lagarde wants to explain the details at a press conference.

The statement reads: "At today's meeting the Governing Council considered that the data received since its last meeting reinforces its expectation that net asset purchases under its asset purchase program should be completed in the third quarter .

Looking ahead, the ECB's monetary policy will depend on incoming data and the Governing Council's evolving assessment of the outlook.

Under the current conditions of high uncertainty, the Governing Council will adhere to optionality, gradualism and flexibility in conducting monetary policy.

The Governing Council will take all measures necessary to fulfill the ECB's mandate to maintain price stability and help safeguard financial stability."

The public pressure on the ECB is great

Unlike America's Federal Reserve (Fed), which has raised its key interest rate by 0.25 percentage points, the ECB is leaving its main refinancing rate at 0 percent despite all the pressure from politics, the banking industry and the public and is also maintaining negative interest rates for banks.

However, she holds out the prospect of a change and normalization of monetary policy.

Economics professor Lars Feld had suggested that the central bank could now announce an end to negative interest rates for September.

Deutsche Bank boss Christian Sewing had said he was expecting an interest rate hike “in the third quarter, or at the latest in the fourth quarter”.

Record inflation and at the same time a lot of uncertainty

Inflation in the euro area has climbed to exceptionally high levels - and has not proved to be as temporary as central bank experts had initially forecast.

"Inflation rates are indeed higher than expected, and they will last longer than originally thought," said ECB chief economist Philip Lane of the FAZ monetary union.

Not only heating oil and petrol have become extraordinarily expensive, food prices have also risen sharply.

In Germany, for example, butter has recently increased in price by 17.6 percent, bread by 7.1 percent and vegetable oil by 30 percent.

Also the so-called core rate of inflation, that is the rise in prices without strongly fluctuating prices such as those for energy and food,

which monetary policy pays more attention to, has reached 3 percent in the euro area.

The ECB is aiming for an inflation rate of 2 percent in the medium term.

At the same time, however, Russia's attack on Ukraine has greatly increased uncertainty about future economic developments.

“The ECB is in a bind.

It must balance rising inflation with downside risks to growth while economic uncertainties remain high due to the brutal Russian invasion of Ukraine and EU sanctions,” said economist Pietro Baffico of asset manager abrdn.

The ECB is therefore pointing out that it is taking a prudent approach.

"Flexibility", "optionality" and "graduality" are three of the central bank's terms for the fact that it does not yet want to commit itself very precisely to monetary policy - and reserves the right to different options and a cautious approach.

Fierce debates in the Governing Council about interest rate hikes

The pace of possible interest rate hikes has recently been the subject of heated debate in the Governing Council of the ECB.

The 'hawks', ie tightening monetary policy advocates, advocated an end to net bond purchases in July or even June and rate hikes from September.

For example, Robert Holzmann from Austria, Joachim Nagel from Germany, Madis Müller from Estonia, Pierre Wunsch from Belgium and Klaas Knot from the Netherlands have all commented in this direction.

But more moderate Council members such as Slovenian Bostjan Vasle and Slovakian Peter Kazimir also called for an end to negative interest rates for the year.

"The most detailed justification for continuing monetary policy normalization was provided by ECB Executive Board member Schnabel in a keynote speech at the beginning of April," reports Michael Schubert, ECB specialist at Commerzbank.

Schnabel argued, among other things, that the inflation risks are due to the increasing price pressure in the preliminary stages.

In addition, it is "much more likely" in the euro area that wages will be delayed, but will also react to both the increase in inflation and a tight labor market for a longer period of time.

Even ECB chief economist Lane and Greek central bank president Giannis Stournaras, who clearly belonged to the “dove” camp in the Council, did not want to rule out a rate hike before the end of the year.

Bundesbank President Joachim Nagel said in an interview with the television program “Plusminus”: “What we are currently seeing indicates that savers may soon be able to look forward to higher interest rates again.” Nagel has warned several times that monetary policy should not miss the opportunity to take countermeasures in good time.

The high inflation rates are unlikely to "consolidate", he said: "That will certainly be a task - especially for the Eurosystem this year."