ECB continues support for Eurozone economies

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The ECB’s Strategy Review will allow for the continuation of support of the Eurozone economies, said Central Bank of Cyprus (CBC) governor Constantinos Herodotou.

“The ECB’s Strategy Review, with its clearer symmetric target, will allow the continuation of support of the Eurozone economies as well as of the financing conditions,” said Herodotou.

“ECB measures have helped the Euro Area economies as well as our country’s economy during the pandemic,” he added.

He referred to the importance of adopting the symmetric 2% inflation target over the medium term.

“This goal brings prices stability and gives the ECB the space to take those measures that will help to address a future crisis, as was done during the pandemic.”

Herodotou stressed the importance of the pandemic emergency bond purchases, which allowed countries to manage their debt better and gave Cyprus access to favourable financing.

Since April 2020, the CBC made emergency €2 bln purchases of Cyprus bonds.

While the Cypriot bond yield was at 2.25% in April 2020, it fell to 0.239% in July 2021.

The Governor said the medium-term target for 2% inflation is feasible, as there is also fiscal support from the European Commission, despite temporary increased inflation expected due to Covid.

“Despite monetary interventions, it is important for vaccinations to proceed, since at the moment the spread of the Delta variant causes increased concern.”

According to the ECB’s new monetary policy strategy, price stability is best maintained by aiming for a 2% inflation target over the medium term.

This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable.

The Governing Council also confirmed that the Harmonised Index of Consumer Prices (HICP) remains the appropriate measure for assessing price stability.

However, it recognises that the inclusion of the costs related to owner-occupied housing in the HICP would better represent the inflation relevant for households and recommends its inclusion over time.

The ECB also acknowledged that climate change has profound implications for price stability and, accordingly, it has committed to an ambitious climate-related action plan.

The first regular monetary policy meeting of the Governing Council applying the new strategy will be held on 22 July 2021.

The Governing Council intends to assess the appropriateness of its monetary policy strategy periodically, with the next assessment expected in 2025.

The previous strategy review was in 2003.

The new strategy follows a thorough review, which was launched on 23 January 2020.