ECB sticks to bond-buying plan despite improving eurozone economy

The European Central Bank will maintain the pace of its bond purchases in the coming weeks, it said on Thursday, resisting calls from some policymakers to start reining in its monetary stimulus as the eurozone economy recovers from the impact of the coronavirus pandemic.

The Frankfurt-based institution kept its main policy measures unchanged in its latest statement.

It said: “Based on a joint assessment of financing conditions and the inflation outlook, the governing council expects net purchases under the [pandemic emergency purchase programme] over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year.”

ECB president Christine Lagarde will explain the decision and set out fresh quarterly forecasts for the eurozone economy in a press conference later on Thursday.

Coronavirus infection levels are falling and lockdowns are being lifted across Europe. The pace of vaccinations is accelerating after a slow start. Business activity, consumer confidence and inflation have all bounced back strongly in recent weeks.

Given the brightening outlook for the economy, which is expected to be reflected in slightly raised ECB growth and inflation forecasts, some of the more conservative hawks on its governing council have called for a slowdown in bond buying.

But after this triggered a sell-off in bond markets a month ago, a string of council members pushed back against this idea, soothing investors’ nerves and bringing borrowing costs back down for eurozone governments. 

Having twice expanded the size of its pandemic emergency purchase programme last year, the ECB has just over €700bn of the overall €1.85tn left to spend under its flagship crisis-fighting policy, which is due to last until at least March 2022.

Most analysts believe the ECB will continue to dismiss any suggestion it is talking about tapering its bond-buying and play down the rise in eurozone inflation above its target to 2 per cent in May as only a temporary effect while supply adjusts to a rebound in demand.

“Central banks are happy to be behind the curve at this juncture,” said Henrietta Pacquement, a European credit portfolio manager at Wells Fargo Asset Management. “Manufacturing in Europe is doing better and services are expected to improve, but I think the ECB will want to see more evidence of recovery before they act.”