ECB renews pledge on faster buying to ensure crisis rebound

[BRUSSELS] The European Central Bank renewed its pledge to maintain faster emergency bond-buying to sustain the euro-area's rebound from more than a year of debilitating economic crisis.

"The Governing Council expects net purchases under the Pandemic emergency purchase programme (PEPP) over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year," President Christine Lagarde and her colleagues said in a statement on Thursday. They left interest rates, long-term loans to banks, and an older bond-buying programme unchanged.

The decision underscores the ECB's determination to allow no let-up in stimulus even as the region's vaccination campaign and looser lockdown restrictions pave the way for a rebound. Policy makers accelerate the pace of their US$2.25 trillion bond-buying programme three months ago to rein in rising borrowing costs, and several have argued since then that the economy isn't ready for a withdrawal of support.

The euro briefly rose to a session-high before reversing gains to trade 0.1 per cent lower at around US$1.2170. Italian bonds trimmed a decline, with benchmark yields up one basis point at around 0.84 per cent.

The ECB's continued emergency easing is likely to presage a similar move by the Federal Reserve next week not to start winding down stimulus, in a two-pronged policy push to ensure recoveries from the pandemic can be assured.

ECB purchases have been conducted at a pace of roughly 19 billion euros (S$30.6 billion) per week since March, up from 14 billion euros earlier in the year. Thursday's decision suggests they are likely to continue at or close to that higher clip until the recovery firms.

The ECB's decision will probably be paired with a more optimistic outlook for growth in 2021, according to a Bloomberg survey of analysts, while inflation forecasts are also likely to have been revised higher. Policy makers both in the euro zone and in the US argue that prices are being driven by temporary factors including higher fuel costs and manufacturing bottlenecks that will be resolved before too long.

In the euro area, inflation climbed to 2 per cent in May, technically above the ECB's target. The institution's last forecasts, however, showed the institution missing its goal both next year and in 2023.

Officials have repeatedly warned that it is too early for a debate around winding down pandemic measures. The ECB's emergency programme is currently set to run through March 2022, and most economists don't expect it to be extended.

BLOOMBERG