FRANKFURT – The European Central Bank will slow its monthly bond purchases under its crisis program as the region’s economy continues to rebound from the drastic lockdown measures during the pandemic, it announced Thursday.
“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters,” the ECB said.
The ECB didn’t offer details on how much it aims to spend every month from now on. Before the bank “significantly” boosted monthly purchases in March, the bond buys averaged around €60 billion a month, compared to around €80 billion a month over the last two quarters. Ahead of the announcement, most analysts had expected this would drop back to between €60 and €70 billion a month.
The ECB “will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” the statement noted.
The Governing Council’s decision had been widely expected as the recovery has progressed more quickly than expected, with inflation surging to a 10-year high of 3 percent and a cheap euro and low bond yields keeping financing conditions loose.
The ECB left all other policy measures, including record low interest rates of zero percent, unchanged.
All eyes will now turn to ECB President Christine Lagarde, who will present the central bank’s new outlook for growth and inflation and explain the policy deliberations at her press conference starting at 14:30 CET.
Yet anyone hoping for a clear signal on the future of PEPP will likely be disappointed.
Given the persistent uncertainty over the economic outlook amid slowing vaccination rates and possible emergence of new virus variants, policymakers are likely to delay any decision on the exit of the crisis program until their December meeting. By that time, the U.S. Federal Reserve may also have announced its plans to scale down its stimulus. The ECB has said PEPP will run until at least March 2022.
Given that the ECB raised rates prematurely in 2011 — and has essentially undershot its price stability target since — Lagarde is likely to stress the ECB’s readiness to adjust all measures and boost purchases if deemed necessary to ensure price stability.