” Step by step. “” Gradual. “” Avoid a sudden transition. “ Christine Lagarde was barely on Thursday December 16 to insist on the soft and accommodating approach of the European Central Bank (ECB). Admittedly, faced with the economic recovery and rising inflation, it announces, as expected, a reduction in its asset purchase program. But unlike the American Fed, which will end its intervention in March, or unlike the Bank of England, which on Thursday announced an increase in its key interest rate (from 0.1% to 0.25% ), the ECB intends to remain very present in its support for the economy. Its asset purchases will continue at least until 2023. As for a rate hike, it is “Very unlikely” next year.
“It is difficult to compare the euro zone to the United States or the United Kingdom,” explained Ms. Lagarde, the President of the ECB. These three countries are at different places in the economic cycle, started from a different level, received different budgetary support… Just because something is happening at the Fed that the ECB will do the same. “
Delicate tightrope walker exercise
Since the surge of Covid-19 in Europe in March 2020, and the bottling of savings, the ECB has carried out a historic intervention, injecting around 2,000 billion euros, three quarters of it via a pandemic plan, says PEPP (« pandemic emergency purchase programme ») and a quarter by continuing the intervention that was already in place before the Covid, called APP (« asset purchase programmes »).
During the first months of the pandemic, when the storm was building on the financial markets, the ECB injected around 150 billion euros per month; since then, the pace has fluctuated between 80 and 100 billion per month. It will now be reduced, probably around 70 billion euros, in the first quarter of 2022. Then, from April, purchases of the PEPP will cease. They will be replaced only by the APP, at the rate of 40 billion per month in the second quarter, then 30 billion per month in the third quarter and finally 20 billion per month beyond, without time limit.
The ECB is condemned to a delicate exercise in the tightrope walk, caught in a vice between several contradictory forces. On the one hand, inflation now far exceeds its official mandate of 2%. In the euro zone, it reached 4.9% in November, beating all forecasts month after month. In some countries, the outbreak is starting to cause serious concern: 6% in Germany, 7.1% in Belgium, between 7.4% and 9.3% in the three Baltic countries (3.4% in France). Under normal circumstances, such a level would require a tightening of monetary policy.
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