ECB vows to persist with faster bond purchases to prop up recovery
The European Central Bank has reaffirmed its determination to keep borrowing costs low in the eurozone, saying it will maintain its recently increased pace of bond purchases until the bloc’s economy is firmly on the path to recovery.
The central bank said it had “decided to reconfirm its very accommodative monetary policy stance” on Thursday. In a statement released after the decision, policymakers said that “incoming information confirmed the joint assessment of financing conditions and the inflation outlook carried out at the March monetary policy meeting”.
Therefore, “the governing council expects purchases under the [pandemic emergency purchase programme] over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year”, the statement said.
The deposit rate remained at minus 0.5 per cent and the ECB reiterated its stance that its €1.85tn emergency bond-buying programme could be further expanded or not used in full, depending on its progress in stimulating a recovery in output and inflation.
The eurozone economy continues to suffer from the containment measures deployed to rein in the bloc’s high Covid-19 infection rates. But the pace of vaccinations has accelerated in many countries recently, fuelling economists’ hopes that restrictions may be eased next month, a move that many expect to trigger a strong rebound.
Speaking at a press conference after the announcement, ECB president Christine Lagarde said: “While the recovery in global demand and sizeable fiscal stimulus are supporting global and euro area activity, the near-term economic outlook remains clouded by uncertainty about the pandemic.”
An “ample degree of monetary accommodation” is still necessary and an “ambitious and co-ordinated fiscal stance” from eurozone governments “remains crucial”, she added.
“The progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in the course of 2021,” Lagarde said, adding that the medium-term outlook remained balanced. While the eurozone economy is forecast to contract in the first quarter, she said growth was expected to resume in the three months to June.
The more conservative members of the ECB governing council hope that conditions will brighten enough in the coming weeks to justify reducing the pace of bond-buying when it publishes new forecasts in June, although other council members regard that as premature given the low level of inflation.
The debate about when to start winding down the huge bond-buying programmes launched by central banks around the world in response to the economic shock of the pandemic is one of the major issues that policymakers must confront.
The Bank of Canada said on Wednesday it would scale back its monthly bond-buying in response to the improving economic outlook. But the US Federal Reserve said last month it was not yet ready to reduce its asset purchases and the Bank of England said recently it expected to complete its bond-buying “around the end” of this year.
At the ECB’s last monetary policy meeting in March, it decided to conduct emergency bond purchases at a “significantly higher pace” in the second quarter to mitigate the risk that a sell-off in bond markets could push up borrowing costs before the recovery has taken hold.
But since then, its weekly net purchases have increased only marginally, leaving analysts wondering whether the recent rebound in sovereign bond markets led ECB officials to change their minds.
“Euro area financing conditions have remained broadly stable recently,” Lagarde said, while adding that “risks to wider financing conditions remain”.