ECB's emergency stimulus could end next March: Holzmann

Frankfurt

THE European Central Bank (ECB) could end its emergency stimulus scheme next March and markets may be right in not pricing in an increase in more traditional asset purchases, Austrian central bank chief Robert Holzmann said on Monday.

The ECB's Survey of Monetary Analysts expects the bank to ends its 1.85 trillion euro (S$2.96 trillion) Pandemic Emergency Purchase Scheme by the end of March and does not see a ramp-up in the Asset Purchase Programme to compensate for the lost stimulus. "This is how the market sees this and I think the market gives the right assessment," said Mr Holzmann, who sits on the ECB's rate setting Governing Council. "We don't know yet but at the moment is looks like the end is in March."

The exceptional stimulus must end when the pandemic is over but ECB support via other schemes will continue, and Mr Holzmann even mentioned the option of modifying the Asset Purchase Programme.

"We still have other programmes there, the APP, which can continue, changed or unchanged," Mr Holzmann told a roundtable discussion organised by UBS.

The pandemic is far from over, he added, so this timeline could still change and the ECB will next conduct a deeper assessment in September, when new staff projections are made.

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Meanwhile Central Bank Executive Board member Fabio Panetta outlined a strategy in which the institution uses "unconventional flexibility" to keep borrowing costs low until government spending has helped push up inflation.

He called on governments and the public to recognise that the current mix of fiscal and monetary stimulus is "clearly superior" to before the pandemic, when political leaders were focused on reducing debt.

"A return of macroeconomic policy to the pre-pandemic status quo would be an immense wasted opportunity," he said at a conference of Mediterranean central bankers on Monday. "We should recognise that what was seen as unconventional in the past is now conventional."

While Europe's economy is picking up quickly as infections drop and pandemic restrictions are lifted, he said it's unclear how long the demand surge will last. That means it's too soon to consider reining in support. "We do not seem to be on track to 'run the economy hot'," he said.

The ECB's 1.85 trillion-euro emergency bond-buying programme has been particularly beneficial in narrowing the differences in borrowing costs across countries, Mr Panetta argued, suggesting that some of those powers might need to be kept when the temporary measure expires.

He also said the ECB will need use the verbal tool of "forward guidance" to pledge that it won't undermine public-sector spending plans by creating uncertainty over when it will raise interest rates.

"This guidance creates a natural window for fiscal action," he said.

"Governments that spend wisely today can be assured that they will not be penalised with a premature rise in borrowing costs." REUTERS, BLOOMBERG