ECB leaves policy unchanged, but makes a ‘slight hawkish’ tweak to statement

European stocks rise after record-setting day in U.S., with Lagarde set to take stage

The European Central Bank, as expected, made no changes Thursday to interest rates or its bond-buying program after bolstering its stimulus efforts last month, but hinted that it might not use its full asset-buying arsenal if it doesn’t appear to be needed.

“If favorable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” the ECB said, referring to its 1.85 trillion euro pandemic emergency purchasing program, which it said is set to run through “at least the end of March 2022” after being expanded last month.

The ECB added that the envelope “can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. “

“This is the first time that we see specific reference, in the official communication announcing policy changes, to the idea that the PEPP might not be used in full,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics,in a note.

Vistesen described the added language as a “slight hawkish tilt in the communication, and also one which could become a target for markets.

” After all, the ECB is now saying that if yields remain as low as they are now, there isn’t a reason to deploy the PEPP in full. We wouldn’t put it past markets to test the central bank on this,” he said, while noting that the position is balanced by the prospect that the ECB could further boost the size of the program if conditions warrant it.

Others argued that the additional language was in line with what ECB officials have been signaling, and shouldn’t offer much of a surprise:

ECB President Christine Lagarde was set to hold a news conference at 2:30 p.m. Frankfurt time, or 8:30 a.m. Eastern.

The euro

was higher versus the dollar following the statement and ahead of the news conference, up 0.5% at $1.2161.

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