The European Central Bank will complete the asset repurchase program under the quantitative easing anti-crisis program by the end of March next year. At the same time, the regulator will increase the purchase of assets under the basic program to € 40 billion per month in the second quarter of 2022 and to € 30 billion in the third. Experts call the change in the regulator’s approach “soft tightening” – following the US Federal Reserve and the Bank of England (the latter raised the rate for the first time since the beginning of the pandemic), the ECB also began to take into account inflationary risks.
The European Central Bank (ECB) has again adjusted the parameters of quantitative easing – the volume of buybacks under the Pandemic Emergency Purchase Program (PEPP) will be reduced. It is planned to be fully completed at the end of March 2022. The total volume of the program was increased to € 1.85 trillion a year ago, and in July 2021 its deadline was set – March 2022.
At the same time, the ECB extended the period for reinvesting proceeds from redeemable bonds under the PEPP at least until the end of 2024. In addition, the regulator, as before, will buy assets under its main program (Asset purchase program, APP). The volume of the buyback will even be increased – to € 40 billion per month in the second quarter of 2022 and to € 30 billion in the third. From October 2022 onwards, the ECB will repurchase assets under this program monthly for € 20 billion, as it has done so far.
It is assumed that the main program will end only shortly before the regulator starts raising interest rates.
Yesterday they were again retained – on loans at a zero level, on deposits at minus 0.5%, on margin loans – 0.25%. The rates will not increase until the regulator is convinced that inflation will reach the 2% level and that it will stabilize in the medium term, which does not exclude the possibility of a temporary excess of the target.
Note that yesterday the Bank of England announced a rate hike, albeit extremely insignificant – from 0.1% to 0.25%. The decision came as a surprise to market participants. The regulator raised the cost of borrowing for the first time since the beginning of the pandemic – the first among the major central banks of developed countries. Despite the rate hike, the volume of asset purchases was kept at £ 895 billion. The main reason for the rate revision was inflation – it rose in the country from 3.1% in September to 5.1% in November.
In the euro area, the rise in prices also noticeably accelerated – at the end of November, annual inflation amounted to 4.9% against 4.1% in October, while a year ago, on the contrary, there was a drop in prices (minus 0.3%).
The largest increase was shown in the cost of energy carriers – 27.4%, prices for services increased by 2.7%, for non-energy industrial goods – by 2.4%, for food – by 2.2%.
“The ECB has moved to a soft tightening of its policy – the regulator cannot influence the restrictions on production capacities and logistics, which support the growth of inflation beyond the increase in the cost of energy resources, but the central bank has no arguments left for additional policy easing, which increases inflationary risks,” – noted in ING Bank. Note that business activity in the euro area slowed down somewhat in December. The purchasing managers’ index (PMI) according to Markit in December fell from 55.4 to 53.4 points – this is a consequence of the restrictions in the service sector.
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