The ECB is moving towards the end of its monetary support

The European Central Bank (ECB) announced on Thursday that it will soften its support for the economy, despite the spread of the Omicron variant, while remaining prepared to respond to an inflation rebound.

The 1.85 trillion euros ($ 2.1 trillion) debt acquisition that is part of its Pandemic Emergency Purchase Program (PEPP) will be reduced in the first quarter of 2022 to expire at end of March, said the European body chaired by Christine Lagarde.

The program, which was launched in 2020 to prop up the economy and for financial markets to recover from the Covid-19 shock, is currently operating at a monthly rate of 70 billion euros ($ 79 billion) of purchases. net of private and public debt.

Gradual withdrawal

The ECB left open the possibility of extending purchases or reactivating the program if necessary given the uncertainty about the evolution of the pandemic.

In order not to leave the markets without liquidity at once, the central body has also planned an allocation of additional purchases after March.

This amount will be added to the old public and private bond buyback program (called APP).

Currently, the agency buys 20,000 million euros per month under this scheme, but between April and June 2022 it will raise purchases to 40,000 million. In the third quarter they will drop to 30,000 million and as of October they will return to 20,000 million euros per month.

“Progress in the economic recovery and progress towards the inflation target in the medium term allow a gradual reduction in the pace of asset purchases,” the ECB said in a statement.

Rate hike still seems far away

For her part, Christine Lagarde said the ECB is highly unlikely to raise interest rates next year.

“Under current circumstances it is highly unlikely that we will raise interest rates in 2022,” Lagarde said at a press conference after the bank’s monetary policy meeting.

“But we have to be very attentive to what the data tells us. And we will do it in each and every one of the monetary policy meetings, ”said the former managing director of the IMF.

Growth forecasts

The euro zone’s monetary policy body on Thursday lowered its forecast for the region’s GDP growth for 2022 to 4.2%, but raised it to 2.9% by 2023, amid a wave of coronavirus infections and component shortage.

Until now, the institution expected growth of 4.6% for next year and 2.1% for 2023.

The institution’s economists forecast growth of 5.1% for 2021 and 1.6% in 2024, Lagarde said at a press conference.

Inflation, no brake

As for inflation, the central institute raised its forecasts for the euro zone due to energy prices and shortages in industry.

The institution now expects prices to rise 2.6% in 2021 and 3.2% in 2022, before stabilizing at 1.8% in 2023, Lagarde said.

Previously, the ECB expected inflation to be 2.2% in 2021, 1.7% in 2022 and 1.5% in 2023.

The bank expects inflation to return below 2% from 2023, in line with other central banks.

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