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ECB raises inflation forecast, keeps stimulus in place

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The ECB has raised its inflation projections, but kept stimulus in place. Yahoo Finance’s LaToya Harding shares the details.

Video Transcript

JARED BLIKRE: The march towards the institutionalization of Bitcoin and cryptocurrency continues. The Bank for International Settlements, also known as the Central Bankers Central Bank, came out with some guidance in a report on how to treat Bitcoin as it pertains to capital rules. And guess what. It has the highest risk weighting. And here to talk about it is LaToya Harding from Yahoo Finance's UK bureau. LaToya, what are the details?

LATOYA HARDING: Yeah, well, as you mentioned, the Basel Committee of Banking Supervision today put Bitcoin on its highest risk category and proposed really strict rules for cryptocurrencies. That could make them costly for banks. So the regulator today warned banks of market and credit risk, things like fraud, hacking, money laundering, terrorist financing risk when it comes to cryptocurrencies, and said the banks should set aside enough capital to cover losses on any Bitcoin holdings in full.

And one proposal it said today was to attach a 1,250% risk to a bank's exposure to Bitcoin and other currencies, which in practice, could mean that a bank may need to hold $1 in capital for each dollar worth of Bitcoin based on an 8% minimum capital requirement. And these standards will apply to assets created also for decentralized finance and NTFs, Non-Fungible Tokens it said.

So today it's divided cryptocurrencies into two, crypto assets into two groups. So the first were those being fulfilled with a set of conditions, such as stock tokens, which we already got agreement from the committee itself. And then crypto assets like Bitcoin and Ethereum, which it said should pose additional and higher risks, and could be subject to new conservative treatments. So of course, we've seen banks like Citigroup and State Street recently that said they're looking to provide more crypto services to customers. But the committee did say today that it is looking for comments on its proposals, and that they should be in by the latest of September 10.

AKIKO FUJITA: And LaToya, we did get that decision down from the ECB today. Christine Lagarde speaking to reporters after, asked about questions about inflation. Did she give any guidance on that and whether, in fact, she thinks that things could be running a little hotter?

LATOYA HARDING: Yes. So economists at the ECB today, they did upgrade their forecasts for Europe's growth today. And that was thanks to a pick-up in the pace of COVID-19 vaccines across the continent and relaxation of restrictions. And of course, we saw them decide today to keep interest rates unchanged at 0%. And that was despite, of course, these concerns about rising inflation in the eurozone.

Now in May, we saw inflation rising sharply to 2%. But so far, Christine Lagarde basically said at the press conference following the announcement that the economic outlook for the eurozone had improved since its latest policy update in April. But she did warn that the risks remain balanced and uncertainties remain basically throughout the eurozone too.

So just following on with regards to other changes that they made today. It kept its emergency pandemic purchase program maintained at 1.85 trillion euros. And also its asset purchasing program was also held still at 20 billion euros. So all of this was widely expected moves. But again, people will be looking at, economists will be looking on the next decision as, of course, we just come out of those lockdown restrictions across Europe.

JARED BLIKRE: Yep, lots of uncertainty out there, but the ECB standing pat. LaToya Harding, thank you for joining us.