BRUSSELS
The European Central Bank (ECB) has said it will trim the pace of its asset purchases over the coming quarter as the bank takes a tentative step towards unwinding emergency economic aid that supported the economic zone during the pandemic.
The ECB said last week it would buy bonds under its €1.85 trillion Pandemic Emergency Purchase Programme (Pepp) at a pace moderately lower than the €80 billion ($94.6bn) a month it bought over the previous two quarters.
“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 Pepp than in the previous two quarters,” the central bank said.
But the regulator said that it would continue to buy bonds “flexibly, according to market conditions”, as it looks to prevent a tightening of financing conditions that is inconsistent with its inflation target of 2 percent. “In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy” the ECB said.
“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the Pepp, the envelope need not be used in full.”
ECB President Christine Lagarde said the eurozone was on track for strong growth in the third quarter with economic activity at its pre-pandemic level by the end of the year. She expects gross domestic product to expand by 5 percent this year, above the 4.6 percent seen in June, while growth next year is seen at 4.6 percent, largely unchanged from the ECB’s previous 4.7 percent projection.
The European Central Bank’s decision to slow the pace of its pandemic-emergency bond purchases does not equate to “tapering”, Lagarde said, referring to a term used to describe the gradual withdrawal of stimulus measures. “What we are doing is recalibrating” the programme in response to favourable economic conditions, she said.
The European lender has provided record support since the start of the pandemic in the spring of last year but with growth and inflation rebounding, policy-makers have come under pressure in recent weeks to formally acknowledge that the worst of the crisis is over. The ECB did not signal any further withdrawal of support and maintained its long-standing guidance that it will boost support further if it becomes necessary.
Earlier this month, the Bank of England maintained its stimulus package and held interest rates at 0.1 per cent while also signalling that “modest tightening” would be needed as inflation ramps up.
