The European Central Bank announced that it would maintain its large monetary stimulus, deferring a decision on whether to phase out easy money in response to surging inflation as global supply-chain bottlenecks and shortages hinder the region's recovery.

While the eurozone's economy has grown rapidly in recent months as governments eased social restrictions, the region's output is only expected to return to pre-pandemic levels in early 2022, up to a year later than the larger US economy.

In a statement, the ECB stated that it would maintain its key interest rate at minus 0.5% and continue to buy bonds under a €1.85 trillion asset-purchase program, equivalent to $2.15 trillion, at least until March 2022. The bank said it would continue to buy bonds at a "moderately lower pace" than in the previous six months in the final months of this year, echoing a decision announced at its policy meeting in September.

The ECB's decision to remain silent suggests that it will lag behind other major central banks, including the Federal Reserve, in phasing out its pandemic stimulus policies, despite eurozone inflation being at its highest level in more than a decade.

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Investors will now turn their attention to ECB President Christine Lagarde's news conference, which begins at 8:30 a.m. ET today for hints on the bank's next moves, particularly when it might begin to phase out its bond purchases and raise interest rates.

Recent economic data and surveys indicate that the eurozone economy has cooled significantly since the summer, though it is still growing. Aside from supply-chain bottlenecks and shortages, eurozone businesses and households are also contending with record-high gas prices, which are putting a strain on incomes.

According to Holger Schmieding, chief economist at Berenberg Bank, growth will likely be supported in the coming years by pent-up demand from households supported by excess savings, a need for companies to invest, restructure supply chains, and rebuild inventories, as well as more government investment.

Inflation in the eurozone is also significantly lower than in the United States. Last month, the eurozone's two-year rate of consumer price inflation—a measure that excludes comparisons with unusually low prices last year—was only about 1.5% year on year, compared to an annualized 3.4% in the United States, which was well above standard central bank targets of 2%.

Market Reaction

Following the release of the ECB's Interest Rate, the Euro/US Dollar saw some movement towards the upside with it then moving towards the downside shortly after.