The European Central Bank (ECB) marked an inflection in its monetary policy on Thursday, September 9, by announcing a reduction in its intervention in the markets. Its debt purchases will continue but at a “Moderately lower rate”. The drip in the arm of the European economy remains in place, but the ECB is starting to reduce the dose of drugs.

Since the start of the pandemic, the ECB has launched a major debt purchase program, with a total envelope of 1,850 billion euros. More than half has been spent, currently at a rate of around 80 billion euros per month. To this must be added 20 billion euros per month via another support plan, which already existed before the pandemic.

How much will the pace of intervention drop? Andrew Kenningham, of Capital Economics, predicts ten billion euros less per month. That is to say purchases that will continue to the tune of around 90 billion euros per month. “Such a change will not make a significant difference to the financing conditions”, says Kenningham.

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The reaction of the markets proves him right, the interest rate of European countries having fallen slightly after the announcement of the ECB. German ten-year bonds fell from -0.32% to -0.36%. In France, the rate fell from + 0.02% to – 0.04%.

Shortage of raw materials

Christine Lagarde, the President of the ECB, spent the hour of her press conference adopting the most reassuring tone possible, suggesting that the central bank was still on the move. Semantic game, she refuses to use the English word of “Tapering”, the definition of which is however exactly the reduction of debt purchases. She prefers to speak of a “Recalibration”.

The ECB bases its decision on improving the economy. With vaccination programs that have made significant progress throughout the euro area, and health restriction measures that have been largely lifted, growth is back. It should reach 5% this year in the euro zone and 4.6% next year, according to central bank forecasts.

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The other big reason for the ECB to act is inflation. At 3% in August (compared to 2020), its level clearly exceeds the official objective of 2% of the central bank. Worse yet, Mme Lagarde recognizes that it will continue to increase in the coming months. “People see the price increase and feel it”, she admits.

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