The central bank said in a statement on Thursday that it expects asset purchases under the € 1.85 billion ($ 2.2 billion) pandemic incentive program to take place at a significantly higher rate than during the first months of this year. . ‘
The size of the program can also be “recalibrated if necessary” to maintain favorable financing conditions that help counteract the negative pandemic shock against inflation.
The move immediately yielded the proceeds of the 10-year bonds of Germany’s lower bond, although it later regained ground. Yields on Italy’s 10-year bond also fell before recovering slightly.
“Time will tell whether the ‘significantly higher rate’ of the ECB will suffice, given the flawed market response today,” TD security strategists said in a note to clients.
Maintaining a healthy market
Bond yields have moved higher in recent weeks over concerns that prices will rise once the economies reopen, prompting central bankers to realize they want to keep interest rates low and impose stimulus measures. Policymakers fear that a sudden rise in rates could hamper activity and cause problems for governments that have borrowed significant sums to save their economies.
Thursday’s announcement may provide reassurance.
“The central bank has just announced an increase in the rate of [quantitative easing] … in response to a very small increase in bond yields, “said Claus Vistesen, chief economist at Pantheon Macroeconomics, in a research note. This” tells us a lot “about the ECB’s willingness to respond on a change in conditions, he added.
President Christine Lagarde spoke to reporters, stressing that the central bank is closely monitoring inflation, but that it will see any price increase due to one-off factors, such as the return of higher taxes on goods and services in Germany.
The ECB said on Thursday that it expects inflation to rise sharply from 0.3% in 2020 to 1.5% in 2021. The central bank believes that inflation may creep just above its target of 2% in the last three months of this year. years before retreating. to 1.2% in 2022.
Lagarde said the ECB had not yet considered the consequences of President Joe Biden’s $ 1.9 billion stimulus plan passed by Congress on Wednesday. She said the legislation would have an impact on economic forecasts, but the effect should not be “overestimated.”
Europe is caught in a double recession, and GDP is expected to shrink slightly in the first quarter after months of blockades in large parts of the region. A slow explosion of the vaccine will also weigh the recovery.
Lagarde said the risks surrounding the outlook for Europe seemed ‘more balanced’.
“On the one hand, better prospects for global demand have been bolstered by the significant fiscal stimulus and encouraging progress in vaccination campaigns,” she said. “On the other hand, the ongoing pandemic, including the spread of virus mutations and their implications for economic and financial conditions, remains a source of negative risks.”