ECB plans to stop bond purchases from July as inflation rises
- by Danny
- Posted on June 16, 2022
Community financial institutions kept interest rates unchanged.
The European Central Bank’s (ECB) Governing Council has decided to keep all monetary policy tools unchanged, maintaining its roadmap revised in March, although it stressed that future monetary policy decisions will be “selective, incremental and flexible”.
As a result, monetary entities will have net purchases of $40 billion, falling to $30 billion in May and $20 billion in June. After that date, the ECB will consider ending net asset purchases under the government’s asset purchase programme (APP) in the third quarter if data support medium-term inflation forecasts.
While the final decision will depend on an assessment of the outlook, the ECB stressed in Thursday’s statement that the latest data available “reinforces expectations that the purchase program will end in the third quarter.”
If the ECB reduces APP’s net asset purchases to zero, it would be the second time this has happened since the stimulus program began in October 2014. Between January 2019 and October 2019, the ECB has paralyzed net asset purchases, limited to reinvestment maturities.
In any case, monetary authorities have been promising to reinvest assets purchased under the APP “over an extended period of time” after interest rates start to rise.
The issuer will keep the reference rate for its refinancing operations unchanged at 0%, while the deposit facility rate will remain at -0.50% and the lending facility rate will remain at 0.25%. However, the views have changed.
Any adjustments in currency prices will occur “sometime” after the net asset purchase has ended. Likewise, any change in interest rates “will be gradual”.
“The ECB’s rate path will continue to depend on the future direction of the Governing Council and its strategic commitment to stabilizing inflation at 2 percent over the medium term,” the agency stressed.
What hasn’t changed is the Pandemic Emergency Procurement Program (PEPP). Assets purchased under the PEPP will have maturities to be reinvested until the end of 2024. Furthermore, if a new “market segmentation” emerges, the ECB will be in time frame, asset class and jurisdiction.
Regarding bank liquidity, the Frankfurt-based entity said it will monitor bank funding conditions to ensure that the expiration of the TLTRO-III auction does not affect the transmission of its monetary policy.
“The Governing Council is ready to adjust all its tools within its mandate, incorporating flexibility where necessary to ensure inflation is stable at 2 percent over the medium term,” the monetary authority concluded.
Inflation and GDP
According to the latest data released by Eurostat, the Eurozone gross domestic product (GDP) grew by 0.3% in the fourth quarter of 2021 from the previous quarter, down two percentage points from the previous three months. Community Statistics Bureau.
On the other hand, prices rose 5.9% in February, an eight-tenth increase from the previous month and a record high, driven by higher energy and food prices.
Likewise, the annual underlying inflation rate for countries that use the euro as their common currency (a result of excluding the evolution of energy, fresh food, alcohol and tobacco prices from the calculation) rose fourfold to 2.7%.
On the unemployment front, the euro zone’s unemployment rate in February (the last available data) fell by a tenth to 6.8%. Across the EU, the unemployment rate is 6.2%, also one-tenth lower.
The next meeting of the Governing Council of the agency responsible for monetary policy in the euro area will take place on June 9, 2022.
Community financial institutions kept interest rates unchanged. The European Central Bank’s (ECB) Governing Council has decided to keep all monetary policy tools unchanged, maintaining its roadmap revised in March, although it stressed that future monetary policy decisions will be “selective, incremental and flexible”. As a result, monetary entities will have net purchases of $40 billion,…