ECB expects to maintain stimulus flow despite inflation concerns

Christine Lagarde (right), European Central Bank (ECB) Governor, Luis de Guindos Vice Governor (left)

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Frankfurt am Main — European market participants are actually stepping on the stimulus pedal this week, despite the world’s preparations for a recovery in inflation. Are expected.

Talking about the “taper” of bond purchases in the pandemic era is booming in many parts of the world, but the ECB is on its way to avoid uncertain economic outlook and undesired tightening of financial conditions. Many believe that it will be maintained.

Deutsche Bank Chief Economist Mark Wahlberg said in a research note, “This is a tough situation, but we are leaning towards keeping the ECB buying pace.”

“Pigeon trends in ECB board commentary over the last few weeks-pigeons were pigeons, hawks were not hawks-suggest that the board is not at risk,” he said. Added.

Inflation has risen to levels that haven’t been seen for a long time, but the key question is the reliability of current data as a) Covid-19 changes consumption habits and creates the potential for data misrepresentation. And b) how long will post-lockdown effects boost inflation?

“The resumption of the economy will raise many prices in the sectors most hit by lockdowns as a result of regaining previous losses and passing higher costs,” said ECB observer Carsten Brzeski. Explained. ING Diva, in a research note.

“The impact is temporary, but it could easily last until next summer, and inflation could remain high for some time,” he said.

According to recent economic data, the eurozone economy is expected to recover strongly from the second quarter of this year due to vaccination and easing of lockdowns across Europe.

According to Natixis ECB watcher Dirk Schumacher, this could allow the Frank First-based ECB to reassess the risk of its economic outlook from a “downward-leaning” stance to a “balanced” stance. There is.

At its Thursday meeting, the ECB will update its quarterly staff forecasts on inflation and growth, along with traditional interest rate decisions and press conferences.

Societe Generale economist Anatoli Anenkov said, “While inflation could rise slightly this year and next year, growth was largely due to the lack of full incorporation of US fiscal stimulus in March. Is expected to be revised slightly upwards. ” Note.

The key question is when the ECB will begin to curtail large-scale stimuli.

Following the coronavirus pandemic, the ECB launched the Pandemic Emergency Purchase Program (PEPP), which buys regional bonds to stimulate lending and accelerate economic recovery. The program has not changed at the March meeting, with a target purchase price of € 1.85 trillion ($ 2.21 trillion), which will continue until March 2022.

Most observers expect it to begin to taper in September. This means that there is plenty of room to explain the idea at the Sintra Central Bank Conference at the end of the month. But as always, withdrawing monetary stimulus is tricky and the market can react violently.

“The longer it takes for the ECB to admit that the reason for running the Pandemic Emergency Purchase Program (PEPP) at full speed is not as strong as in March, the less gradual the transition to future asset purchase reductions may be. “Berenberg’s chief economist, Holger Schmiding, added.

ECB expects to maintain stimulus flow despite inflation concerns

Source link ECB expects to maintain stimulus flow despite inflation concerns

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