By Laurie Laird
LONDON (MaceNews) – The European Central Bank will decelerate the pace of asset purchases in the third quarter, as it presented upgraded forecasts for the next year, but provided no clue as to what will replace its emergency purchase programme which is due to end next year.
“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases … than in the previous two quarters,” said a statement issued by the ECB on Thursday following its latest rate setting meeting.
The ECB expanded its Pandemic Emergency Purchase Programme to €1.85 trillion in December and is conducting purchases of between €60 billion and €70 billion a month, after accelerating purchases during the first half of the year.
The slowdown comes as the Bank upgraded its forecasts for both output and inflation this year. GDP is likely to grow by 5.0% in 2021, up from the 4.6% pace predicted in June, while the economy is expected to expand by 4.6% next year, down from previous forecast of 4.7%.
The upgrade comes after output rose by 2.2% in the second quarter, a “higher-than-expected”pace than expected, said Lagarde, adding that the “economic risks are broadly balanced,” and that “overall financing conditions remain favourable.”
The ECB also increased its inflation forecast after HICP touched a decade-high of 3.0% in August, well above the ECB’s new target of 2.0%. Inflation is expected accelerate to 2.2% in 2021, up from the June forecast 1.9%, before retreating to 1.7% next year, up from 1.5% in June, but still below the ECB’s target.
Lagarde appeared relaxed about the recent inflation spike, noting that “wages are expected to grow only moderately.”
With inflation predicted fall further to 1.5% in 2023, Lagarde admitted that the eurozone will require continued stimulus once the PEPP ends in March of next year. “When PEPP comes to its term, we clearly have other instruments available,” such as the Asset Purchase Programme, which conducts purchases to the tune of €20 billion per month.
But Lagarde refused to be drawn on any recalibration of the APP next year, stressing that such discussions will not take place until the December Governing Council meeting.
Contact this reporter: laurie@macenews.com
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