The central bank intends to reduce its bond purchases in the coming months as planned.
(Photo: dpa)
Frankfurt As expected, the European Central Bank (ECB) is leaving interest rates at the previous level. She is also sticking to her plan to reduce her bond purchases. From the third quarter, it would then no longer be able to buy any further securities net. The central bank announced this after its council meeting on Thursday in Frankfurt.
It left the deposit rate at the previous level of minus 0.5 percent and the key interest rate at zero percent. The APP bond purchase program is expected to be EUR 40 billion a month from April and then drop to EUR 30 billion a month in May and EUR 20 billion in June. The data received since the last ECB Governing Council meeting in March have “reinforced the expectation that the net purchases of bonds should be completed in the third quarter,” according to the central bank’s statement.
>> Follow live here: This is how Christine Lagarde explains the decisions of the ECB at her press conference
The ECB is thus committing itself somewhat more strongly to an early end to the bond purchases, but does not explicitly say that they will end in June. Frederik Ducrozet, economist at the Swiss asset manager Pictet, therefore assumes that there will be no interest rate hike at the next meeting in June, as he writes on Twitter.
Top jobs of the day
Find the best jobs now and
be notified by email.
The statement is marginally more hawkish but falling short of a firm commitment to end the APP in June, hence not opening up the possibility of lift-off in July. This may explain the (dovish) market reaction. https://t.co/nvKRXpa0fT
— Frederik Ducrozet (@fwred) April 14, 2022
The ECB is currently under pressure because of the high inflation in the euro area. In March, this had risen to 7.5 percent. This is the highest level since monetary union began. The central bank is aiming for a value of two percent in the medium term. The war in Ukraine and the associated sanctions are currently fueling inflation even further, but are also causing a high level of uncertainty and are thus slowing down the economy.
The high inflation actually speaks for a rapid tightening of monetary policy. However, this could further weaken the economy, which was already burdened by the Ukraine war, which would rather speak for a continuation of the loose monetary policy. Some economists are already warning of stagflation, i.e. a combination of high inflation and economic stagnation.
The Fed has already raised interest rates
From the point of view of Friedrich Heinemann, economist at the Mannheim Center for European Economic Research (ZEW), price stability must have priority for the ECB. “Every month of procrastination damages the ECB’s reputation,” he warns.
Unlike the ECB, other central banks have already raised interest rates significantly. The US Federal Reserve raised the key interest rate in the US to 0.25 to 0.5 percent in March and signaled further steps in this direction. Experts believe it is possible that the Fed will raise interest rates by half a percentage point at each of its next two meetings in May and June.
More: Risk of stagflation – Investors protect their portfolio with these four strategies