FRANKFURT – The European Central Bank has said it will accelerate its purchases of eurozone debt following a recent rise in borrowing costs, a surprising decision that deviates from the Federal Reserve because it wants to support the region’s flag economy.
In a statement after the policy meeting on Thursday, the ECB said it would make a significantly higher rate over the next three months than a € 1.85 billion program, equivalent to $ 2.2 billion, than before. this year. It also left its key interest rates unchanged.
The sharp divergence of the short-term economic outlook between the US and the eurozone has put the ECB in a tighter position than the Fed, which recently indicated that it does not want to stem a rise in treasury yields. A slow deployment of Covid-19 vaccines on the continent has led to the return of social constraints slowing Europe’s recovery from last year’s historic downturn, even as the $ 1.9 billion fiscal stimulus appears US economic growth will slow down.
Transatlantic power
The US economy is expected to far exceed the eurozone this year, but borrowing costs are rising on both sides of the Atlantic, a headache for the ECB.
Annual GDP, change from previous year
Meanwhile, the brighter investor sentiment worldwide has increased global borrowing costs. This has created headaches for ECB officials, who are worried that an excessive increase in household and business costs to finance the region could undermine it before it starts.
President Christine Lagarde told a news conference on Thursday that the ECB was acting to counter an undesirable increase in bond yields, partly due to higher growth expectations in the US.
“We are already in action tomorrow,” she said of the ECB’s accelerated bond purchases.
European bond yields fell across the board after Thursday’s announcement. Italy’s standard ten-year yield fell to 0.577% from 0.681% on Wednesday, reaching its lowest level in three weeks. The yield on Germany’s equivalent mortgage fell back to minus 0.362%. Yields move inversely to prices.
Federal Reserve policy makers are meeting on March 16-17 to consider their next move. Fed Chairman Jerome Powell last week gave no sign that the central bank would try to stem a recent rise in treasury yields, which would cause them to rise further.
According to the Organization for Economic Co-operation and Development, the eurozone economy will grow by about 4% this year, compared to 6.5% in the US. The deviation reflects a larger U.S. fiscal stimulus and faster vaccination of vaccines, the OECD said this week.
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While a muscular recovery in the US could help European exports, it could also spill over into higher borrowing costs in the eurozone and elsewhere as investors move money to US markets.
The ECB has twice expanded the so-called Pandemic Emergency Purchase Program in recent months, most recently to € 1.85 billion in December, and has about € 1 billion in unused purchasing power. The central bank said on Thursday it would continue to buy bonds at least until March 2022, and is ready to change the scope of the emergency program if necessary.
Write to Tom Fairless by [email protected]
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