ECB slows crisis stimulus for next quarter as rebound takes hold
The European Central Bank will slow down the pace of its pandemic bond-buying program in the final three months of 2021, an acknowledgment that the euro areas recovery is strong enough to endure with less support.
The Governing Council decided it will conduct purchases at a "moderately lower pace" than the roughly 80 billion euros ($95 billion) of monthly acquisitions deployed in the past two quarters. ECB President Christine Lagarde justified the decision by saying the economy's "increasingly advanced" rebound could be maintained with less monetary help.
She also cautioned that the global spread of the delta variant could yet delay the full reopening of the economy. Officials, who revealed new forecasts showing inflation will still undershoot their target, reiterated a pledge to keep the 1.85 trillion-euro program running until March 2022 or later if needed, signaling they're not yet ready to discuss ending the measure.
The ECB's move to persist with stimulus contrasts with major central banks elsewhere, a stance Lagarde was keen to emphasize. The U.S. Federal Reserve and the Bank of England have signaled their intention to gradually unwind crisis-era aid.
"The lady isn't tapering," she said, describing the ECB's decision on Thursday as "a recalibration of the pandemic emergency purchase program for the next three months."
That timetable makes the December meeting a crucial one for the future of the central bank's stimulus program.
New staff forecasts showed a stronger near-term outlook for prices and growth, though still insufficient to fulfill its mandate. Inflation will average only 1.5% in 2023, below its 2% target.
Lagarde's balanced message to investors meant the ECB was able to dial down its level of stimulus without provoking an immediate market backlash. The euro trimmed gains as she spoke, trading little changed on the day at around $1.1821 as of 3:34 p.m. Frankfurt time.
"This is not a tapering decision, as ECB President Lagarde stressed," Elga Bartsch, head of macro research at the BlackRock Investment Institute, said in an emailed comment. "Asset purchases look here to stay as the new policy framework paves the way for looser for longer monetary policy in the euro area."
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With supply-chain disruptions and resurgent virus infections threatening to undermine the recovery and medium-term price pressures likely to remain well below its goal, officials have insisted in recent weeks that the euro-area economy is in a different state than the U.S. and remains reliant on ECB support.
Yet some governors have started to warn publicly that maintaining an ultra-accommodative stance for too long also carries risks. Austria's Robert Holzmann and Klaas Knot of the Netherlands both told Bloomberg in separate interviews last week that emergency asset purchases should end in March, hinting at heated discussions about the policy path in the months ahead.
The ECB's main guide will be financing conditions across the 19-nation bloc. Government bond yields and the euro slid over the summer months, before picking up again recently in anticipation of Thursday's announcement.
Policymakers also took the following decisions:
- The deposit rate remains at -0.5%.
- Interest rates won't rise until projections show inflation sustainably at 2% and underlying price pressures are consistent with that goal.
- An older asset-purchase program continues at 20 billion euros a month.
- Long-term loans to banks will continue to support lending.
