Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

ECB trims emergency support - but don't call it tapering

EconomySep 09, 2021 11:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. The skyline with its banking district and the European Central Bank (ECB) are seen, as the spread of the coronavirus disease (COVID-19) continues, in Frankfurt, Germany, March 31, 2020. REUTERS/Kai Pfaffenbach 2/2

By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) -The European Central Bank will trim emergency bond purchases over the coming quarter, it said on Thursday, taking a first small step towards unwinding the emergency aid that has propped up the euro zone economy during the coronavirus pandemic.

After the ECB pulled out all the stops last year as COVID-19 ravaged the economy, high vaccination rates across Europe are bolstering recovery prospects and policymakers have been under pressure to acknowledge that the worst is over.

The ECB did so by slowing the pace of its Pandemic Emergency Purchase Programme (PEPP), which has kept borrowing costs low as governments took on unprecedented amounts of debt to finance the response to the pandemic.

But with rising U.S. infection rates making the Federal Reserve hesitant to wind down its stimulus, the ECB was keen to stress it wasn't about to close the money taps.

"The lady isn't tapering," ECB President Christine Lagarde told a news conference to explain the decision, using a turn of phrase reminiscent of former British Prime Minister Margaret Thatcher's famous declaration "the lady's not for turning".

"What we have done today ... unanimously, is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions. We have not discussed what comes next," she said.

Lagarde pushed back a decision on how to wind down the 1.85 trillion euro PEPP to December and stressed that, even if that happens, the ECB will continue keeping credit cheap in its quest to boost inflation to its target.

"The day when PEPP is over ... the job is not finished because we are still targeting 2%," Lagarde said.

With the economy now on a stronger footing, the ECB said that favourable financing conditions could be maintained with a "moderately lower pace" of asset purchases compared to the 80 billion euros it bought per month during the past two quarters.

It provided no numerical guidance for the three months ahead, but three sources with knowledge of the discussion said that policymakers set a monthly target of between 60 billion and 70 billion euros, with flexibility to buy more or less, depending on market conditions.

Highlighting policymakers' caution, the bank also maintained a longstanding pledge to ramp stimulus back up if markets turn and financing conditions require it.

NOT ON THE GREEN

While Lagarde struck an optimistic tone on the labour market, she stressed that future recovery prospects still depended on the continued success of Europe's vaccination programme and the trajectory of infections across the world.

"We are not out of the woods, we are not on the green, as the golf players will appreciate," Lagarde said.

The ECB upgraded its growth forecast for this year to 5% from a previous 4.6% target and raised inflation expectations. Inflation is now seen at 2.2% this year, falling to 1.7% next year and 1.5% in 2023 - well below the ECB's 2% target.

Prices rose by 3% year-on-year in August, according to preliminary estimates, a commodity-fuelled pinch that is being felt by many consumers.

But Lagarde said policymakers continued to believe that wage pressures were modest and that supply bottlenecks currently hitting materials and equipment would start to ease.

With Thursday's decision, the ECB's key rate remains unchanged at minus 0.5%, PEPP remains on track to end next March and purchases under the older Asset Purchase Programme (APP) remain at 20 billion euros a month.

DECEMBER DECISION

But Lagarde skirted the big issue around the exact end of emergency support, leaving that contentious decision for December's meeting.

The difficulty is that the bank must signal the end of PEPP, its biggest asset-purchase scheme, as the coronavirus crisis ends, while promising to maintain support via other tools because inflation is still too low.

That will require the ECB to shift its focus to the more rigid, longer-established APP, the bank's primary stimulus tool before the pandemic.

But to make the APP fit for purpose, the ECB must increase purchase volumes and make its rules more flexible - which conservative members of the Governing Council could resist, fearing that the ECB is already acting beyond its mandate.

"I think the council is far too divided for her to start deliberating on that," Gilles Moec, chief economist at French insurer AXA Group, said.

($1 = 0.8462 euros)

ECB trims emergency support - but don't call it tapering
 

Related Articles

Four ways to navigate the holiday tipping vortex
Four ways to navigate the holiday tipping vortex By Reuters - Dec 09, 2021

By Chris Taylor NEW YORK (Reuters) - When it comes to holiday tipping, is America a nation of Scrooges? That is what Ted Rossman wondered. When CreditCards.com recently polled...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Ajay Uppal
Ajay Uppal Sep 09, 2021 12:43PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They are not calling it Tapering because stock markets don't like Tapering word these days.. While it is in fact a tapering.
Mbuso Siera
Mbuso Siera Sep 09, 2021 9:25AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
https://www.instaforex.com/bonus?x=OLUUF
perplexed76 .
perplexed76 . Sep 09, 2021 8:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
ECB is too big to fall. But who knows
peter neal
peter neal Sep 09, 2021 7:59AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Communists control the Markets.
Joel Schwartz
Joel Schwartz Sep 08, 2021 9:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Central banks are a larger threat to the markets than any pandemic or war.
Ajay Uppal
Ajay Uppal Sep 08, 2021 9:03PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Tapering is required NOW rather than Later
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email