ECB slows pace of pandemic emergency purchase programme

ECB president Christine Lagarde said that the move was not "tapering" but that the bank was "recalibrating". Photo: Ludovic Marin/AFP via Getty Images
ECB president Christine Lagarde said that the move was not "tapering" but that the bank was "recalibrating". Photo: Ludovic Marin/AFP via Getty Images

The European Central Bank (ECB) has decided to slow the pace of the emergency economic aid it put in place during the pandemic this quarter.

At its policy meeting on Thursday, the bank said it was taking the step towards unwinding the pandemic emergency purchase programme (PEPP) at a "moderately lower pace".

The size of the PEPP envelope still remained at €1.85tn (£1.58tn, $2.19tn) and is due to end in March 2022. It was first put in place in March 2020 to support the eurozone economy through the health crisis.

The PEPP programme had been buying around €80bn of bonds per month, after the ECB raised the pace earlier in March, and analysts had predicted that purchases would fall to between €60bn and €70bn in the next few months.

The ECB purchased €65bn of debt securities under the programme in August. It did not signal the eventual wind down of PEPP.

"Based on a joint assessment of financing conditions and the inflation outlook, the governing council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme than in the previous two quarters," the bank said in a statement on Thursday.

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Seema Shah, chief strategist at Principal Global Investors, said: "Characteristically, [the ECB] hasn’t tied itself to a specific pace of purchase, instead retaining an element of flexibility which will be helpful in the face of a potential tightening in financial conditions as Fed taper draws near."

At a press conference after the policy announcement, ECB president Christine Lagarde said that the move was not "tapering" but that the bank was "recalibrating" similarly as it did in December and March.

The bank also held interest rates at 0.0%, as widely expected by economists, as well as keeping the interest rates on the marginal lending facility and the deposit facility at 0.25% and -0.5%, respectively.

It comes as inflation in the eurozone hit a 10-year high of 3% in August, while gross domestic product (GDP) in the second quarter had a 2% gain quarter-on-quarter.

Lagarde said the ECB had lifted its growth and inflation forecasts for this year, with inflation at 2.2% during 2021, up from 1.9% predicted back in June. However, it is still seen dropping below the 2% target in 2022 (1.7%) and 2023 (1.5%).

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The ECB president also pointed to a stronger recovery this year, with GDP expected to rise 5%, up from 4.6%. She added that economic growth is now forecast to be 4.6% the following year, and 2.1% in 2023.

The downside risks to growth largely centred around the coronavirus pandemic and the spread of the Delta variant, which was first detected in India.

"The speed of the recovery continues to depend on the course of the pandemic and progress with vaccinations," she said.

She later added: "There remains some way to go before the damage to the economy caused by the pandemic is overcome. There are still more than two million fewer people employed than before the pandemic, especially among the younger and lower-skilled. The number of workers in job retention schemes also remains substantial.

"To support the recovery, ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy.”

The euro gained 0.2% against the dollar following the decision to trade at around $1.1837.

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