September 21, 2021

E.C.B. Will Slow Its Crisis-Era Bond Buying

It’s a concoction that has created divisions among the central bank’s policymakers about when to slow and then end its enormous bond-buying program. It began in March 2020 as the pandemic spread across Europe, and is meant to buy a total of 1.85 trillion euros in bonds and run until at least next March. The slowdown would help ensure the purchases end on schedule, though the central bank hasn’t ruled out an extension.

“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,” the central bank said in statement on Thursday.

Thursday’s decisions are the first test of the central bank’s updated forward guidance. In July, policymakers said they were willing to overlook short-term jumps in inflation and would raise interest rates only once it was clear the annual inflation rate would reach 2 percent “well ahead” of the end of the central bank’s projection horizon and stay around that level over the medium term.

New projections for inflation and economic growth will be published later on Thursday when the central bank’s president, Christine Lagarde, will hold a press conference.. The previous forecasts, in June, predicted inflation would peak at 2.6 percent in the fourth quarter and decline to 1.5 percent in 2022 and 1.4 percent in 2023.

But inflation has already risen to 3 percent in August, the highest in nearly 10 years, the region’s statistics agency said last week. So far, policymakers have been betting that the jump in inflation will be temporary, like other central banks around the world.

Article source: https://www.nytimes.com/2021/09/09/business/economy/european-central-bank-meeting.html

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