By Laurie Laird
LONDON (MaceNews) – The European Central Bank will accelerate purchases under its crisis quantitative easing programme, but otherwise left policy unchanged at Thursday’s Governing Council meeting, as it confronted the recent rise in bond yields.
“There was consensus at the table of the Governing Council today,” said ECB President Christine Lagarde, briefing reporters virtually following the rate-setting meeting.
Members of the council have sent mixed signals over the surge in bond yields over recent weeks. Earlier this month, Executive Board member Fabio Panetta said the increase was “unwelcome and should be resisted,” countering hawkish comments from Bundesbank President Jens Weidmann, who warned of potential tightening should inflation rise to his forecast of 3%. The head of the Bundesbank did not have a vote at Thursday meeting under the Governing Council’s rotating system.
ECB bond holdings under its Pandemic Emergency Purchase Programme increased by €11.9 billion in the week ending 3 March, down from €12.0 billion the previous week and an average of over €18 billion since the programme began last year, confounding analysts who expected an acceleration of purchases as sovereign yield climb.
But Lagarde defended the timing of the announcement, stressing that quickening the pace on a “quarterly basis is convenient,” given the “fresh data and fresh information” available to the Governing Council ahead of regular rate-setting meetings.
The Council modestly increased its 2021 growth forecast to 4.0% from the 3.9% gain predicted in December, but lifted its inflation forecast more dramatically, to 1.5% this year from the 1.0% projected three months ago. Given “technical and temporary factors” such as the rise in German value-added tax at the start of the year and the increase in energy prices from low levels in 2020, inflation could hit 2% by year end, Lagarde added.
However, inflation will fall to an annual rate of 1.1% next year before recovering to 1.4% in 2023, remaining well below the ECB’s target of close to but below 2%.
The latest forecasts do not include a lift from the $1.9 trillion U.S. stimulus package, but the “Biden plan is going to have an impact” on the global economy, said Lagarde, adding that the ECB’s June forecast will reflect the effect of additional U.S. spending. But she warned against “overestimating” the impact of U.S. fiscal policy on the eurozone economy.