The ECB announces the stimulus withdrawal plan: it will progressively reduce the purchase of bonds

The European Central Bank (ECB) has announced the end of the purchase program against the pandemic (the so-called PEPP) from March, as planned. Thereafter, debt purchases will fall by half from the current level. Under the PEPP, the institution is buying 60,000 million euros per month, to which is added the 20,000 million it acquires through the conventional stimulus program, the so-called APP.

But, on the other hand, as of March, the ECB will increase the purchases of the APP by 20,000 million per month, to 40,000 million. In this way, as of March, the current volume of purchases will go from 80,000 million to one of 40,000 million, although the decrease will be progressive: the ECB will gradually cut monthly purchases under this umbrella until March. until its final disappearance. The central bank thus tries to show a small turn of the rudder in its monetary policy.

In this way, the ECB will once again give full prominence to the APP (from the second quarter of 2022) “in line with a gradual reduction in asset purchases and to ensure that the monetary policy stance is appropriate.”

A progressive reduction

As of October 2022, the Governing Council will maintain net asset purchases under the APP at a monthly rate of € 20 billion for as long as necessary to reinforce the accommodative impact of its policy types. The Governing Council expects net purchases to end shortly before key ECB interest rates begin to hike.

This date will be watched by the market, since the end of net purchases will be the starting gun for the first rise in interest rates in the euro zone in years.

The ECB more hawkish

Economists at TD Securities believe that “the decision provides markets with more clarity than many expected today, with application relatively stuck through to 2022. The message is hawkish and hard-line, since it suggests the end of the APP sometime in 2023 and the arrival of rate hikes shortly thereafter. “

ING analysts underline the complexity of the central bank’s movements: “With today’s decision, the ECB has entered into a cautious purchase reduction process and that is less clear than we expected. The ECB has chosen to guarantee the same level of flexibility in APP, which includes allowing it to buy Greek bonds. “

As far as interest rates are concerned, the changes have been conspicuous by their absence, as was to be expected on the other hand. The monetary institution leaves the main interest rate (charged to banks in weekly auctions) is at 0%, the rate on the deposit facility (the rate charged to banks for parking their money in the Eurosystem) It is at -0.5% and the credit facility (the one charged to banks that need urgent liquidity from the ECB) at 0.25%.

The context is complex for the central bank. On the one hand, it must be taken into account that inflation (the only real mandate of the ECB) skyrocketed to 4.9% in November, highs in the history of the euro zone. On the other hand, GDP data for the third quarter of 2021 reveals that the euro zone is already only 0.3% away from reaching pre-covid GDP levels: “This is an argument in favor of reducing monetary stimuli from meaningfully and quickly, “the Berenberg experts say.

The purchase of omicron

However, the recent rise in infections in central Europe and the rapid spread of the omicron variant of covid are casting a dark shadow over the short-term outlook for the euro zone.

Against this background, many members of the ECB’s board have spoken in favor of maintaining a high degree of flexibility when discussing the future of the ECB’s asset purchase programs.

There are many points that Christine Lagarde, its president, had to explain in the subsequent press conference of the interest rate meeting. Among them have been the economic forecasts, in which inflation has taken on a special role. In addition, the French has also recognized that the recovery is slowing down.

The ECB today revised its growth and inflation forecasts. ECB President Christine Lagarde has stated that prices will exceed the 2% target next year. Specifically, inflation will climb to 3.2%. Without food and energy it will be 1.9%. The banker has continued to insist, however, on the transitory nature of the price hike.

Despite everything, from Allianz they believe that the ECB’s rhythm will be very different from that of the Fed (yesterday he hinted that it will raise rates three times in 2022), the Bank of England (it has raised rates this Thursday) or the Bank of Canada . “For the euro zone we expect the cycle of rises to be even more superficial, which in turn suggests that there will be little adjustment in real terms,” ​​they comment from the German insurer.

“Therefore, the ECB’s tightening cycle is just a gradual elimination of the current crisis mode rather than a clear deviation from the accommodative monetary stance that was already prevalent before the covid-19 crisis. We expect a first rise in the crisis. deposit rate in September 2023, the first since the summer of 2011 and the beginning of the first cycle of significant increases since the end of 2005 “, say these experts.