ECB Raises Outlook, Inflation, and Keeps Stimulus Steady

The European Central Bank (ECB) raised its growth and inflation forecasts on Thursday, and pledged a steady stream of stimulus, fearing a rise in borrowing costs and a recovery wipe off.

With economies reopening from lockdowns and mass vaccinations speeding up, the central bank raised most of its growth and inflation forecasts and declared risks to the outlook balanced, abandoning long-term guidance for downside risks.

It is now seeing growth in 2021 at 4.6%, above the 4% forecast in March, while the forecast for next year has been raised to 4.7%.

Inflation expectations have also been raised over the next several years, seeing price growth of 1.9% in 2021, in line with the bank's target and above its recent forecast of 1.2%.

The bank bought most of the new debt issued by eurozone governments and said it would buy bonds at a "much higher" pace, confirming its March pledge.

It bought about €80 billion euros worth of debt per month under the Pandemic Emergency Purchase Program (PEPP) this quarter, up from about €62 billion in Q1.

“We believe that the steady hand is actually the right response,” ECB President Christine Lagarde said at a press conference, stressing that the bank had not discussed reducing, or exiting the €1.85 trillion pandemic emergency purchase programme.

Morgan Stanley said that it expects the situation to look different in the upcoming joint assessment of financing conditions and inflation expectations in September, when vaccines will approach the 70% vaccination target, and the recovery fund will be operational.