The European Central Bank (ECB) will announce the reduction of its purchase program against the pandemic in December, according to the consensus of analysts consulted by the American media CNBC . The improvement in the economy and rising inflation will be key for the ECB to take this step towards normalization.
In the US, the Federal Reserve has made it clear that it will begin to reduce its purchasing program before the end of the year . President Jerome Powell commented last week that the US economy is at a point where it does not need as much monetary support, although the pace at which asset purchases will be reduced has yet to be decided.
And in the euro zone, a similar announcement could be around the corner. “My thinking is that they will probably do it in December,” Gilles Moëc, group chief economist at AXA Investment Managers, told CNBC .
The ECB will meet on September 9, but analysts believe that the central bank will wait a few more months before announcing what it will do with its extraordinary measures related to covid.
“I think they want to give themselves some time and have new forecasts,” explains Moëc, before the governing council of the ECB makes a final decision.
The tapering will come …
In addition to having new forecasts on the table, Chiara Zangarelli, Nomura’s European economist, adds that the ECB will also want to see what happens to the pandemic in the coming months. As things stand, “it would be difficult even for the moderates” at the ECB to postpone an announcement on the reduction beyond December.
The ECB’s chief economist, Philip Lane, also stressed in an interview last week that “September is a long way off” from the current end date of its pandemic asset purchase program (it officially ends in March), leaving foresee that the announcement on the reduction could take a few more months.
Preliminary data released on Tuesday suggested that the euro area is ‘suffering’ from a higher-than-expected inflation rate, after hitting 3% a year, the highest rate since 2011. North and center countries are already pressures the ECB to start normalizing its policies due to fear of inflation.
The ECB had admitted that it expected an increase in consumer prices this year, albeit due to temporary factors. The central bank’s objective is to achieve a general inflation rate of 2% in the medium term. If higher inflation rates persist, this would add pressure on the ECB to reverse its stimulus at a faster pace.
What has happened so far?
The institution led by Christine Lagarde launched a new asset purchase program in the wake of the coronavirus in March 2020 to support the euro zone. The Pandemic Emergency Purchase Program, known as PEPP, will end in March 2022 with a potential total endowment of € 1.85 trillion.
The program has given the ECB more flexibility, specifically the power to buy Greek bonds, which did not meet the investment criteria to be bought in other programs and has allowed the bank to bypass some of the parameters imposed in the previous purchase program.
“I think it is a bit premature for PEPP purchases to fall significantly, PEPP purchases will continue to be very high during the fourth quarter before declining in the first quarter of 2022,” says Guillaume Menuet, European economist at Citi.
Moëc, from AXA Investment Managers, expects the PEPP to conclude in March “but then the big conversation will come, which will be what to do with the APP”. The APP is the purchasing program prior to the PEPP, which has been forgotten during the pandemic.
When the pandemic hit the euro zone in March 2020, the ECB also maintained its asset purchase program, known as APP , which has a current monthly rate of € 20 billion. The central bank has been using this program in combination with PEPP to support financial conditions in the euro zone.
Salomon Fiedler, an economist at Berenberg, assures CNBC that this other program will last until 2023 after announcing an increase in its purchases. Nomura’s Zangarelli, meanwhile, believes the APP is likely to expand in size once PEPP comes to an end. This expert hopes that these details will also be made known at the December meeting.
Lane, from the ECB, also said last week that “the conditions to end APP do not exist.” “Regardless of when the PEPP ends, that is not the end of the ECB’s role in terms of QE. That’s why we don’t need a waiting time to think about it. Of course, we can’t put it too late either. But six months. it is a long time. In autumn, we will have to solve many problems related to how 2022 should be, “he told Reuters.
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