(BFM Bourse) – The ECB decided on Thursday to accelerate the gradual withdrawal of its asset purchases while allowing time to act on rates, as Russia’s invasion of Ukraine upsets its plans monetary normalization.
The war in Ukraine is prompting the ECB to significantly raise its outlook for inflation in the euro zone for the current year (from 3.2% to 5.1%) and to lower its growth forecast (from 4.2 % to 3.7%) but the monetary authority surprised the market by deciding not to temporize on the rhythm of its “tapering”. “The central bank could open the door to a time lag in its policy of reducing asset purchases [le fameux “tapering”, NDLR] supposedly scheduled until the end of the year”, notes Guillaume Dejean at Western Union Business Solutions. “The markets are still anticipating a first rate hike in December but this decision could be postponed until next year” he added.
If the governors of the ECB have indeed decided to give themselves time on the key rates, no longer affirming that a halt in debt purchases will be automatic followed by an increase, which will be the first since 2011, the Frankfurt institution tightens the screw on “tapering”.
“The ECB’s PEPP (for “Pandemic Emergency Purchase Programme”) will be stopped at the end of the month, which was already known, but the ECB also announced the end of the other purchase program of assets (APP, for “Asset Purchase Programme) in the third quarter” points out Alexandre Baradez, head of market analysis at IG. The latter, which plans to buy public and private debt, will see its wings increase from 40 billion euros in April to 30 billion in May then 20 billion in June before being at zero “in the third quarter if the outlook for inflation in the medium term does not weaken” indicates the press release. ” on February 3, the Board of Governors indicated that it wanted to lower its purchases under the APP program to 20 billion from October alone, and “to maintain them at this rate for as long as necessary”.
Rigid forward guidance?
“We are in no way accelerating monetary tightening,” Christine Lagarde surprisingly affirmed during the press conference after the publication of the ECB’s press release. “Sorry, but yes, you do,” replies Frédérick Ducrozet, strategist at Pictet Wealth Management.
“In a very uncertain context in terms of growth, this decision to end the APP in the 3rd quarter is incomprehensible” judge for his part severely Franck Dixmier, director of bond investments at AllianzGI. The institution finds itself, according to him, “de facto prisoner of a rigid forward guidance… whereas on the contrary we expected a flexible approach” he regrets.
On rates, the central bank says “any adjustments will occur sometime after the APP program ends. […] and will be gradual”. “Given the risk of stagflation [inflation élevée couplée à une croissance faible ou nulle, NDLR] and high uncertainty, this decision “gives the central bank maximum flexibility and leaves open the option of a rate hike before the end of the year”, estimates for his part Carsten Brzeski, analyst at ING .
Quentin Soubranne – ©2022 BFM Bourse