The European Central Bank (ECB) has decided that it is time to gradually withdraw part of the artillery used to combat the crisis derived from the pandemic. With the recovery taking shape and prices climbing, the institution chaired by Christine Lagarde has decided to maintain the pandemic emergency purchase program (PEPP) until at least March 2022, but to execute it with “a moderately slower rate of net asset purchases” under the Pandemic Emergency Purchase Program (PEPP) than in “the previous two quarters,” according to a statement issued by the bank. Pending the appearance of Christine Lagarde after the Governing Council of the ECB, the note does not specify what the new volume of purchases will be, which is now 80,000 million euros per month. The bank has also left interest rates intact again: the reference rate remains at 0%, and the deposit facility at -0.5%.
World stock markets, whose main indices have reached record highs in recent weeks, have already been losing for two days in anticipation of the relaxation of purchases of public and corporate debt by the ECB. Analysts had put the magnifying glass during the summer in the United States, where the presidents of some Federal Reserve districts have spoken out for a quick withdrawal of monetary stimulus. However, it has finally been Lagarde who has started the process to relax asset purchases in the euro zone.
Growth in gross domestic product (GDP) and employment accelerated in the second quarter of this year, even exceeding that of China and the United States. The vice president of the ECB, Luis de Guindos, advanced in late August his confidence that the institution’s economists would raise their forecasts for the next few months on Thursday. The rise in energy prices also caused inflation to skyrocket to 3% last August. The rise in prices has given wings to hawks, concerned about the negative rate environment,in front of pigeons, who want to avoid any signals that scare the sovereign debt markets.
Analysts believe that, even so, this moderation of purchases will be very prudent so as not to scare investors, so that the ECB can set a monthly purchase volume of between 60,000 and 70,000 million euros. The note emphasizes that the program will remain in force until March 2022 and, “in any case,” until it is judged that the crisis derived from the pandemic has ended. Even after the program is terminated, the ECB will continue to provide liquidity with the reinvestment of debt that is due until the end of 2023.
Throughout the crisis, Lagarde has been loading the PEEP up to 1.85 billion euros. So far, the ECB has made debt acquisitions at the rate of € 80 billion a month. In addition, the Frankfurt-based institution will maintain the 20,000 million euros of the purchase program that it had been deploying already before the pandemic (APP, for its acronym in English). Unlike the Great Recession, monetary policy has been accompanied by an expansionary fiscal policy advocated from Brussels, which has given countries a free bar to spend and launched the Next Generation EU recovery fund.