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European Central Bank cuts pandemic bond purchases, but pledges further stimulus

Christine Lagarde (R), President of the European Central Bank (ECB), and President Luis de Guindos (L)

Thomas Lohnes | Getty Images News | beautiful pictures

LONDON – Events European Central Bank further cut bond purchases on Thursday but vowed to continue unprecedented monetary policy support for the eurozone economy into 2022.

The ECB left its benchmark refinancing rate unchanged at 0%, while the marginal lending rate remained at 0.25% and the deposit-basis rate was kept at -0.5%, in line with the expected.

Bond purchases under the 1.85 trillion euro ($2.19 trillion) Pandemic Emergency Purchase Program, or PEPP, scheduled to end in March 2022, will be cut next quarter as This plan is over.

However, bond purchases under the Asset Purchase Program, or APP, will be stepped up to act as a bridge to quantitative easing through the end of PEPP, continuing at a monthly rate of 20 billion euros. along with PEPP so far.

“The Board of Governors assesses that progress on the economic recovery and moving towards the medium-term inflation target allows for a gradual reduction in the pace of their asset purchases over the coming quarters,” the ECB said in a statement on Thursday. Five.

“However, monetary stability is still required for inflation to stabilize at the 2% inflation target in the medium term.”

The ECB said its decisions will allow the Board of Governors to maintain flexibility and discretion in its monetary policy decisions amid the current economic uncertainty that the eurozone has created. Consists of 19 members to face.

Inflation across the eurozone hit a record high of 4.9% in November, while Covid-19 The omicron variation is spreading across the Continent, and delta tensions have brought some European economies to a partial standstill.

The ECB has so far adopted a more dovish tone towards the Bank of England and the US Federal Reserve, having adopted an unprecedentedly loose monetary policy to bring the region’s economy back to life. The euro weathered the pandemic.

The euro was up 0.5% against the dollar following the decision, trading at around $1.134. German 10-year package yield increased to -0.3220%. Yields move inversely with price.

Given the ECB’s emphasis on “flexibility” in the “design and conduct” of its quantitative easing, Gurpreet Gill, global fixed-income macro strategist at Goldman Sachs Asset Management, said. In a research note, the general signal that the bank’s approach is “transitioning from supportive in times of crisis, yet remaining resilient.”

“At the time of the last meeting of the Board of Governors, market-based inflation expectations were at 2.1%. Today was 1.85%, showing a divergence in Europe’s inflation outlook. Europe versus other advanced economies like the US and UK. This morning PMI data also suggests that supply cost pressures may now be peaking,” said Gill.

“On the outlook for future rate hikes, we expect the ECB to raise rates in 2024 – once core inflation is likely to stabilize at 1.5% amid the pandemic and policy distortions.” That would mean a whole decade of negative interest rates.”

https://www.cnbc.com/2021/12/16/european-central-bank-leaves-interest-rates-unchanged-cuts-bond-buying-further.html European Central Bank cuts pandemic bond purchases, but pledges further stimulus

Sunbiz

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