European Central Bank slightly reduces support

The European Central Bank (ECB) on Thursday decided to reduce its main support in the face of the pandemic to cruising speed, while keeping its accommodative monetary course, at a time when the European economy is recovering and undergoes a marked awakening of the ‘inflation.

This drop in pace, presented as a “moderate” slowdown, will result in a lower volume of public and private debt buybacks on the market in the coming months. It was widely expected by the markets.

The Frankfurt institution, on the other hand, left those who hoped for clues about a possible normalization strategy for monetary policy unsatisfied with the economic situation improving.

The discussion on the future of monetary support will be held “in December,” ECB President Christine Lagarde told reporters, saying it was not discussed at the Governing Council meeting on Thursday. .

The recovery, it is there, noted the institution which raised to 5% its GDP growth forecasts for this year.

Economic activity in the euro zone should even “exceed its pre-pandemic level” by the end of 2021, according to the ECB.

“The economy is rebounding, but we’re not there yet. We are not out of the woods, ”Ms. Lagarde stressed, however, to justify the choice of governors not yet to address the issue of the gradual withdrawal of monetary stimulus (tapering).

“The time will come” to normalize monetary policy, as fiscal policy is the responsibility of governments, but “it is still premature,” she added.

The President of the ECB referred this politically sensitive debate among central bankers in the euro zone to the December meeting.

Temporary inflation?

“The Board of Governors decided on the minimum possible. Not changing anything at all would have been too little given the rise in inflation ”recorded since the spring in the euro zone, analyzes Jens-Oliver Niklasch, of the LBBW bank.

But next December, the “hawks”, monetary officials hostile to a policy that is too accommodating, “will probably have good cards in hand” to obtain a change of course, adds the expert.

Inflation in the euro zone should indeed peak in the coming months. Propelled to 3% in August, a sign of the rebound in consumption, but also of shortages of materials, it could reach 2.2% over the whole of 2021, according to the ECB which also raised its forecasts for an increase in prices. price.

Christine Lagarde’s conviction remains that the current price increase “should be largely temporary” and linked to temporary factors such as the scarcity of certain industrial components, she indicated.

But these pressures on prices “could be more persistent”, she added, which would oblige the ECB to react if necessary.

With the decision taken Thursday, the ECB therefore modulates its interventions, but without presenting this as the first step in withdrawing from its emergency PEPP program, which has lasted since March 2020. In front of the press, Christine Lagarde assured that she did not turn off the floodgates.

The term of this exceptional envelope is still set for March 2022 and the Frankfurt Institute is retaining the possibility of relaunching if market conditions so require.

“Snail rhythm”

From around 80 billion euros, monthly redemptions should be reduced to 60 to 70 billion from October to December, according to the expectations of observers.

The ECB has also renewed the other tools of its anti-crisis potion made of historically low interest rates and massive debt purchases to guarantee favorable credit conditions for businesses and consumers.

In particular, the negative rate of 0.5% will continue to apply to a fraction of bank liquidity deposited with the ECB instead of being distributed to the economy.

It was the second monetary policy meeting of central bankers in the euro area since they unveiled their new inflation target at 2% in early July, a medium-term target that can tolerate temporary deviations.

“The ECB is moving – at a snail’s pace,” concludes analyst Holger Schmieding of Bank Berenberg.