“Less purchases than Bond, but we continue”

The European Central Bank announced its intention to soften the pace of bond purchases, with the Pepp anti-crisis program, to a “moderately lower” level than in the past two quarters, while it postponed directly to December (thus bypassing the next Council meeting board, October 28) the discussion on the future of Pepp himself.

For now, it has confirmed the program endowment at 1,850 billion, together with the deadline set until the end of March 2022 but also “until the critical phase linked to the coronavirus is deemed to be over”. What this will concretely mean remains to be understood.

Meanwhile, using her communication skills, President Christine Lagarde rejected the idea that this is “tapering”, ie the process of gradually reducing monetary stimulus. “If I can summarize with a sentence: ‘the lady is not doing tapering’ – he said in the press conference at the end of the Council – we are recalibrating, as already done in December and March” (the first time by dampening the purchases, the second by re-increasing them, now re-damping them).

“Our commitment to maintaining favorable financing conditions does not change. We believe we can maintain them at a moderately slower pace of these purchases, ”he explained.

The ECB also reiterated its intention not to raise rates “until inflation reaches 2% well before” the end of its forecast horizon and that this “may entail a transitional period” in which it falls “moderately to above the target “. Pimco analysts note that at the moment the markets seem to be betting on a first rate hike only at the end of 2023, “well beyond” the first hikes expected by the Fed and the Bank of England.

In the meantime, the technicians of the institution have raised the growth forecast for the euro area for 2021 to more than 5%, reduced that for 2022 to 4.6% and confirmed that for 2023 to more than 2.1% of GDP. The ECB then revised its inflation expectations upwards in the euro area but even so “in the medium term – Lagarde asserted – it is expected to remain well below our target”. Now the forecast is for an expensive life in the area at 2.2% over this year, 1.7% over the next but 1.5% over 2023, against an inflation target of 2%.

On this Lagarde has provided an element in which the EU differs from the US and which seems to weigh in a greater prudence in approaching a future tapering. If over the Atlantic, inflation is triggering “second-level effects”, as central bankers call them, in terms of wage increases, even on the lowest qualifications (the Fed noted yesterday in the Beige Book) and even a fatigue of job offer to keep pace with the demand of companies, in the euro area this scenario is not yet seen and does not seem to be upon us.

«In many countries – the president pointed out – people see and hear prices rise. But we do not see large wage increases at this stage and the increases, as a result of collective bargaining, are likely to be moderate in the months to come. However we will follow them carefully ».

What could change these forecast scenarios is the possible future failure to dissipate the “bottlenecks” in global supply chains, which were triggered with the first unfortunate total lockdowns and have been dragging themselves into the global economy for months. If, instead of returning, they were to continue, they would have an upward effect on prices, Lagarde warned, but also a brake effect on growth. And in any case “we are not out of danger yet, we are getting closer but we are not out”.

Meanwhile, all the levels of the reference rates in the currency area are confirmed: zero on main refinancing operations, 0.25% on marginal refinancing operations and minus 0.50% on deposits with the central bank itself. Finally, it confirmed the pace of purchases of securities with the App program, which existed before the crisis, at € 20 billion a month.

The future of the App is a theme linked double up with the future of Pepp and the discussion is postponed to December, as repeatedly pointed out by Lagarde, so much so that at a certain point he was even asked why he put so much emphasis. on the meeting at the end of the year (there are also those who, a little indirectly, have insinuated that they want to wait for the results of the elections in Germany, at the end of the month, a circumstance that the president has firmly denied).

In October “we will have a lot to discuss, don’t worry, but as far as Pepp is concerned and its duration, the important meeting will be December – replied Madame -. Pepp is a very specific program, conceived for the pandemic and clearly when it ends we have all the other tools available, including the App which is now permanently in our armamentarium and which will continue to be used ».

(with source Askanews)

Source: RSS DiariodelWeb.it Economia by www.diariodelweb.it.

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