European Central Bank to slow pace of emergency asset purchases

The European Central Bank on Thursday announced it would slow down the pace of asset purchases its conducting as part of an emergency program put in place during the early days of the pandemic.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters,” the ECB said following its policy meeting, referring to its pandemic emergency purchase program. The ECB in March had moved to increase the pace of PEPP purchases.

At the same time, net purchases under the ECB’s separate asset purchase program are set to continue at a monthly pace of €20 billion ($23.7 billion), the ECB said. The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates, the ECB said. PEPP purchases, meanwhile, will continue until at least the end of March 2022, the central bank said, with a total envelope of €1.85 trillion.

“While today’s policy statement confirms that the ECB will reduce the pace of its asset purchases slightly compared to its average since March, this is a long way from being a ‘full taper,’” said Andrew Kenningham, chief Europe economist at Capital Economics, in a note.

“Total asset purchases will probably continue at an average monthly rate of around €90 billion per month in the coming quarter, there is still no firm end-date for the emergency purchase program and, for now, the ECB still plans to continue with the standard APP until shortly before it raises interest rates,” he said.

Investors will be looking to ECB President Christine Lagarde’s news conference at 2:30 p.m. Frankfurt time, or 8:30 a.m. Eastern, for more details.

The move wasn’t unexpected. The ECB also left interest rates unchanged, with its deposit rate at negative 0.5%. while the main refinancing rate remains at 0%.

The euro

remained up slightly, holding a gain of 0.2% versus the U.S. dollar at $1.1840. The yield on the 10-year German government bond
or bund, was down 1.1 basis points at negative 0.331%.

European equities were slightly lower, with the Stoxx Europe 600

down 0.2%.

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