(Frankfurt) The European Central Bank on Thursday announced the easing of its economic support system, despite the spread of the Omicron variant, as it stands ready to respond to soaring inflation, as the ‘said the American Fed.
The monetary institution chaired by Christine Lagarde recorded as planned the end, after March 2022, of its asset purchases launched to deal with the consequences of the pandemic as part of an emergency mechanism (“PEPP”), with an envelope of 1850 billion euros.
This program, launched in 2020 to help the economy and financial markets recover from the shock of COVID-19 and which currently runs at a monthly rate of around 70 billion euros in net private and public debt redemptions, will see its reduced pace in the first quarter of 2022 before stopping at the end of March.
The press release of the day adds, however, that the ECB is saving itself the possibility of resuming net purchases under the PEPP given the “uncertainty” on the evolution of the pandemic.
And so as not to suddenly wean the markets, with the risk of tensions on financing conditions in the economy, the central bank has planned an additional purchasing envelope after March.
This monetary windfall will be added to the old public and private bond buyback program (“APP”), which will be increased to 40 billion euros per month in the second quarter of 2002, then to 30 billion in the third quarter, to return to 20 billion euros per month then, its current rate.
“The progress of the economic recovery and the move towards the medium-term inflation objective allow a gradual reduction in the pace of asset purchases”, explains the press release even if “monetary accommodation is still necessary”.
ECB President Christine Lagarde is due to comment on these decisions from 2:30 p.m. (8:30 a.m. EST).
Divergent sensitivities
The question of the normalization of monetary policy arouses debates within the institution: the “hawks” want a less expansive course while the “doves” are in favor of maintaining significant monetary support in the face of renewed uncertainties. , starting with the potential impact of the Omicron variant.
The resigning President of the Bundesbank Jens Weidmann, whose last participation in an ECB meeting before his departure at the end of December was, has continued to point out the risk for the central bank of finding itself the main creditor of the States of the zone. euro.
“Perhaps the ECB’s greatest hope is for European leaders to agree on a reform of fiscal rules in March, led by France and Germany, which would finally make euro area growth less dependent on the economy. monetary policy ”, analyzes Frederik Ducrozet, strategist at Pictet Wealth Management.
Unlike the United States, the ECB did not let the prospect of an imminent hike in interest rates, which will remain at their lowest level despite inflation (4.9% over one year in the euro zone in November).
Banks will continue to be levied a 0.50% levy on part of the deposits they entrust to the central bank instead of lending them to their customers.
New forecasts
In front of the press starting at 8:30 a.m. EST, Mme Lagarde should repeat that a tightening of the credit valves is “very unlikely” for next year.
It will also unveil a new set of forecasts, extended to 2024, with a probable increase in the inflation projection for 2022 then a decline in 2023.
Twenty-four hours before the ECB, its American counterpart, the Fed, said it was counting on higher inflation than expected in 2021 and 2022, after the meeting of its monetary policy committee.
In order not to let prices slip, the Fed is now planning to stop its asset purchases as early as March, three months ahead of the initial schedule, paving the way for three hikes in its key rates in 2022.