ECB to Accelerate Bond Purchases Program to Aid Recovery

ECB to Accelerate Bond Purchases Program to Aid Recovery

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Key Takeaways

• ECB to step up efforts to curb rising borrowing costs
• ECB President to maintain loose monetary policy and “favorable” financing conditions

The European Central Bank announced it will significantly speed up the pace of its bond-buying program. The central bank had been slowing purchases from its pandemic bond-buying program (PEPP) over the past few weeks amid growing concerns of rising inflation. The decision by the ECB to ramp up its buying of government debt is an attempt to step up efforts to contain borrowing costs. As rising bond yields threaten to derail the eurozone economy, the ECB pledged to conduct its €1.85tn pandemic emergency program “at a significantly higher pace” in the next quarter.

In its latest monetary policy decision on Thursday, the European Central bank aimed to reassure investors that it is ready to intervene in the market to limit rising costs of finance for governments, businesses, and individuals.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year,” ECB President Christine Lagarde said during the press conference, following the monetary policy decision.

Slow Vaccine Rollout in Europe

According to its report, the ECB is willing to maintain its asset purchase program until “at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.” Inflation concerns, much like in the US, have been the main concern for the European Central Bank in times of injecting fresh liquidity into the market. Investors fear that if inflation in the eurozone picks up too fast, bonds are going to fall and this is going to make borrowing much more difficult.

“Market interest rates have increased since the start of the year which poses a risk to wider financing conditions,” Ms. Lagarde said during the press conference. “We are preserving favorable financing conditions with a look at the inflation outlook that we have. Once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative fiscal and monetary policies, will contribute to a gradual increase in inflation over the medium term” she continued.

Another issue that is weighing on the economic recovery across Europe is the sluggish rollout of the coronavirus vaccine. The European Commission has highlighted the slow and uneven vaccination program in Europe. European authorities are pressuring drugmaker AstraZeneca to honor its contractual obligations and to speed up its Covid-19 vaccine deliveries. EU Commission President Ursula von der Leyen urges AstraZeneca to dispatch more doses to the 27 member states. The pharmaceutical company further cut its target for vaccine supply to the EU in the first quarter. Initially promising 90 million doses, AstraZeneca now aims to deliver about 30 million by end of March. Due to delays in deliveries, many European countries are now considering a return to some form of lockdown and social restrictions that have the potential to derail their already-stuttering economies.