All ECB bond purchases could end by next September: official

London

THE European Central Bank (ECB) could stop buying bonds as early as next September if inflation looks to have sustainably returned to the official target, Governing Council member Robert Holzmann said.

Introduced in 2015, the bank's asset purchase programme, or APP, was designed to get consumer-price growth back to 2 per cent, according to Holzmann, who heads Austria's central bank and is considered one of the eurozone's most hawkish policy makers.

"So the elimination of the condition and therefore the end of the programme could - depending on the inflation development - happen in September or at the end of the year," he told an event on Wednesday (Nov 10) in London.

Italian bonds were little changed at the open on Thursday (Nov 11) after Holzmann spoke.

His timetable would suggest stimulus withdrawal that is far sooner than anticipated by ECB observers, with economists surveyed by Bloomberg foreseeing the bond-buying tool staying in operation at least through the end of 2023. ECB officials are 5 weeks away from a meeting to lay out their post-pandemic policy path. While President Christine Lagarde has signalled pandemic asset purchases will end as planned in March, there's no consensus on what will happen to the bank's conventional bond-buying plan - currently running at 20 billion euros (S$31.1 billion) a month.

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Inflation in the euro area - subdued in the years following the global financial crisis - is running at twice the official medium-term goal.

Holzmann, who expects price growth to stay above 2 per cent throughout 2022, said he opposes any changes to the conventional bond-buying plan. He's also against another round of targeted longer-term refinancing operations aimed at enticing banks to provide loans to the real economy.

"The data analyses we have show that additional lending effects were very low," he noted. "I see no reason for this to keep on running - the economic effect is low."

The focus now is on the path for inflation. Goldman Sachs predicts it will settle half a percentage point above pre-pandemic levels. That means the natural rate of interest - at which economic growth is neither stimulated nor constricted - could get a similar boost relative to the aftermath of the 2008 crash.

"Inflation being below 2 per cent at the end of 2022 - I wouldn't bet a lot of money on that happening," Holzmann said. Models suggest the rate will dip below that level in 2023 or 2024, however, he added.

Inflation is likely to be 2.2 per cent in 2022, according to new European Commission forecasts set to be published later on Thursday. The ECB will release its own projections at its meeting next month. BLOOMBERG