The accommodative policy of the European Central Bank continues. Guaranteed purchase of securities and still negative cost of money, a sign that inflation is not a problem these days
Forward to the bitter end, with the accommodative policy based on low interest rates and the purchase of government bonds. As widely expected, the European Central Bank confirms monetary stimulus and interest rates, postponing any speech of a possible one to after the summer, and perhaps beyond. tapering that is, an upward revision of rates to contain a possible flare-up in inflation. For the moment, therefore, in Frankfurt there is no red alert on the return of inflation (but there is expectation for the American figure), as is also shown by a certain serenity of EU financial operators.
Eurotower therefore confirmed that the pace of asset purchases under the Pepp will also remain “significantly higher” in the next quarter than in the first months of the year. In detail, the rates remain unchanged between 0% and -0.50%, and will remain at levels “equal to or lower than the current ones” until the inflation outlook converges “firmly on a level sufficiently close but below 2% ”, Reads the note released by Frankfurt. The Governing Council led by Christine Lagarde, confirms market expectations and does not make changes to the 1,850 billion euros of Pepp (the securities purchase program) “at least until the end of March 2022” and “until the critical phase linked to the coronavirus is deemed to be over”.
Purchases that will be conducted in a flexible manner based on market conditions, in order to avoid a tightening of financing conditions that are incompatible with the downward effect of the pandemic on the forecast inflation profile. At the same time, the ECB will continue to reinvest the principal repaid on the securities maturing under the Pepp framework at least until the end of 2023. In any case, the future reduction of the Pepp portfolio will be managed in such a way as to avoid interference with the adequate orientation of monetary policy. Net purchases under the Asset Purchase Program will continue at a monthly pace of € 20 billion.
For sure, inflation is a manageable problem for the moment. A recent Assiom-Forex survey found that 76% of EU financial operators said the recent significant price hikes reflect a year-over-year comparison that is actually unreliable given the freeze a year ago and remains in the system. there is still a lot of space to recover before real inflationary pressures can be generated. This is also in consideration of the fact that about 10 million jobs were lost in the labor market in 12 months. According to the remaining 24%, on the other hand, the increase in long-term bond yields will lead to an upward revision of inflation expectations and with a monetary policy that remains ultra-accommodative there is a real risk that the factors that push inflation from transient become permanent.