— Rate Hikes to Come ‘Some Time After’ Asset Purchases End
LONDON (MaceNews) – The European Central Bank surprised forecasters, announcing a reduction in asset purchases over the second quarter and raising the possibility of a rate hike this year, following the conclusion of Thursday’s governing council meeting.
Purchases under the long-running Asset Purchase Programme will total €40 billion in April, falling to €30 billion in May and €20 billion in June, before ending in the third quarter, according to the rate decision published earlier on Thursday. That’s down from €40 billion per month announced following the February meeting.
The ECB also paved the way for a rate hike as soon as this year, stating that “any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP.” Addressing reporters following the policy statement, President Christine Lagarde deflected questions about the timing of lift-off, stressing that the decision to raise rates will depend on incoming data. “The phrase ’some time after’ is an open time horizon,” she said.
Few economists had predicted the gradual reduction in assets purchases through the second quarter, and Lagarde took pains to note that “we’re not talking about accelerating” the withdraw of stimulus; “We’re talking about normalising.”
While Lagarde presented the policy decision as having garnered the “agreement among all members” of the governing council, she admitted to a lack of consensus regarding the economic outlook, particularly in light of the energy price surge following Russia’s invasion of Ukraine. “There were differing views around the table in all directions,” she said.
Events in eastern Europe prompted a marked revision of ECB’s forecasts. Inflation is now expected to average 5.1% in 2022, up from the 3.2% predicted in December, before falling to 2.1% next year, up from 1.8% previously.
Meanwhile, growth is likely to be less exuberant that expected three months ago. The Eurozone economy will expand by 3.7% this year, down from the 4.2% pace predicted in December, while 2023 growth was revised downward to 2.8% from 2.9%.