ECB Renews Pledge on Faster Buying to Ensure Crisis Rebound

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The European Central Bank renewed its pledge to maintain faster emergency bond-buying to sustain the euro-area’s rebound from more than a year of debilitating economic crisis.

“The Governing Council expects net purchases under the pandemic emergency purchase program over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year,” President Christine Lagarde and her colleagues said in a statement on Thursday. They left interest rates, long-term loans to banks, and an older bond-buying program unchanged.

Lagarde will hold a press conference at 2:30 p.m. Frankfurt time to explain the announcement in full, where she will also unveil the institution’s latest macroeconomic projections.

Follow the press conference on our live blog

The decision underscores the ECB’s determination to allow no let-up in stimulus even as the region’s vaccination campaign and looser lockdown restrictions pave the way for a rebound. Policy makers accelerate the pace of their 1.85 trillion-euro ($2.25 trillion) bond-buying program three months ago to rein in rising borrowing costs, and several have argued since then that the economy isn’t ready for a withdrawal of support.

The euro briefly rose to a session-high before reversing gains to trade 0.1% lower at around $1.2170. Italian bonds trimmed a decline, with benchmark yields up one basis point at around 0.84%.

The ECB’s continued emergency easing is likely to presage a similar move by the Federal Reserve next week not to start winding down stimulus, in a two-pronged policy push to ensure recoveries from the pandemic can be assured.

ECB purchases have been conducted at a pace of roughly 19 billion euros a week since March, up from 14 billion euros earlier in the year. Thursday’s decision suggests they are likely to continue at or close to that higher clip until the recovery firms. Most economists don’t expect a reduction until September.

What Bloomberg Economics Says...

“The European Central Bank under President Christine Lagarde has again shown its determination to provide the euro-area economy with plenty of monetary stimulus to grease the wheels of recovery.”

-David Powell. For the full report, click here

The ECB’s decision will probably be paired with a more optimistic outlook for growth in 2021, according to a Bloomberg survey of analysts, while inflation forecasts are also likely to have been revised higher. Policy makers both in the euro zone and in the U.S. argue that prices are being driven by temporary factors including higher fuel costs and manufacturing bottlenecks that will be resolved before too long.

In the euro area, inflation climbed to 2% in May, technically above the ECB’s target. The institution’s last forecasts, however, showed it missing its goal both next year and in 2023.

Officials have repeatedly warned that it is too early for a debate around winding down pandemic measures. The ECB’s emergency program is currently set to run through March 2022, and most economists don’t expect it to be extended.

©2021 Bloomberg L.P.