The European Central Bank on Thursday stuck to its timetable for tapering bond purchases in the third quarter despite record inflation in the euro zone, but did not determine when it would raise interest rates.

Policymakers at the Central Bank’s Governing Council meeting in Frankfurt this week faced a dilemma over how to sharply tighten monetary policy in response to record inflation amid rising inflation risks. sharp economic downturn As a consequence of Russia’s invasion of Ukraine.

The European Central Bank kept its main policy rate unchanged at -0.5%, repeated its statement “The calibration of net purchases in the third quarter will be data dependent and reflect the Council’s evolving assessment of the outlook”.

“How the economy develops will depend critically on [Ukraine] The ECB said the impact of the current sanctions and possible further measures were clashing. “

“inflation has increased significantly and will remain high in the coming months, mainly due to the sharp rise in energy costs,” it said, adding that given the uncertainty, it would “maintain the selectivity, gradualness and flexibility of monetary policy implementation. “.

The euro edged lower after the ECB announcement, while euro zone bonds rose. The euro was flat at $1.088, giving up a 0.2% gain ahead of the decision. Germany’s 10-year bond yield fell 0.03 percent to 0.77 percent from an earlier high.

Markets expect the ECB’s deposit rate to rise above zero by the end of the year and rise to nearly 1.5% by the end of next year. But the central bank said any rate hikes would be “gradual” and would only happen “for some time” after net bond purchases were halted.

By contrast, many other central banks have stopped buying bonds and started raising interest rates. This week, the Reserve Bank of New Zealand and the Bank of Canada both raised interest rates by half a percentage point, while monetary authorities in South Korea and Singapore also tightened policy.

Fed is expected rate hike At its May policy meeting, the Bank of England has raised its main interest rate by 0.5 percentage points, while the Bank of England has raised it three times since December and is expected to do so again at its meeting next month.

this ECB speeds up timetable Net bond purchases ended at last month’s meeting. Since then, inflation in the euro area rose to a record high of 7.5% in March, strengthen the phone Get the central bank to withdraw stimulus faster.

However, the ECB continued to forecast that inflation will fall back below its 2% target within two years as energy prices retreat from recent highs and supply chain bottlenecks ease.

The central bank also hinted on Thursday that it plans to introduce a potential “new tool” for targeted bond purchases in response to any unreasonable selling of bonds of a particular country or group of countries.

“The pandemic has shown that under stressful conditions, flexibility in the design and implementation of asset purchases can help offset the impaired transmission of monetary policy and make the Governing Council’s efforts to achieve its objectives more effective,” it said, adding ” under stressful conditions”, it will aim to maintain this flexibility.

The euro zone sovereign bond market has sold off since the start of the year, as investors expect a surge in inflation to force the European Central Bank to stop buying bonds and start raising interest rates soon.

However, the spread between 10-year borrowing costs in Germany and Italy has only increased slightly, from about 1.3 percentage points to 1.6 percentage points since the start of the year.

Some policymakers remain concerned that the fallout from the Ukraine war could reduce growth and increase debt levels in southern European members, pushing up their borrowing costs faster than others.