As market participants give up believing that there are temporary factors for consumer inflation, which has been running at its peak for 13 years in Europe, they focus on October monetary policy decision that the European Central Bank (ECB) will announce today.

High levels in commodity prices, especially in the energy group, and the supply bottlenecks due to the pandemic, and the consumer price index (CPI), which reached its highest level in Europe since 2008, started to create pressure for the ECB to reduce asset purchases.

According to data released by Eurostat, consumer price index in Eurozone increased by 0.5 percent in September compared to the previous month and it was registered as 3.4 percent year-over-year.

September meeting: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expected the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon. And the Governing Council noted that they will continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion.

While it is on the agenda that global supply chain disruptions may create risks to the growth of the European economy, producer inflation, which reached an all-time high of 13.4 percent, also indicates that price pressures will continue for some time.
At the moment, the Federal Reserve is making assessments on reducing asset purchases, while some developed and developing countries are also looking for ways of a tight monetary policy. The European Central Bank could make a transition to a soft balancing policy after the decision on reducing net purchase rate.

To sum up, in the face of the inflation outlook deviating from the 2 percent target, we expect the European Central Bank to prevent the perception of a policy tighter than expected and point to December meeting for ending Pandemic Emergency Purchasing Program at its October meeting, which will end at 15:45 (GMT+2) today.
However, we do not expect changes in net purchases under the asset purchase program (APP), which is underway at a monthly pace of 20 billion euros, to maintain policy effectiveness. Christine Lagarde, the President of the European Central Bank, will attend a press conference as usual after the meeting at 16:30.