The ECB reduces economic stimuli in the face of rising inflation


Inflation grows and the economic outlook improves. The threat of the delta variant is still present, and so are the uncertainties, but the pace of economic recovery is taking off in the European Union at a time when, in addition, European recovery funds are already beginning to arrive – € 750 billion between now and 2026–.


Spain is already growing above the European average

Spain is already growing above the European average

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Before this panorama, The European Central Bank has decided this Thursday to slow down the pace of asset purchases –In July it was 80,000 million euros– of the PEPP program –1.85 trillion euros– aimed at reducing pressure on the public debt of the States and avoiding a crisis in the risk premium like that of the previous financial crisis.

“Based on an assessment of financing conditions and inflation prospects,” says the ECB statement, “the Governing Council estimates that favorable financing conditions can be maintained with a moderately slower rate of net asset purchases. under the Pandemic Emergency Purchase Program (PEPP) compared to the previous two quarters. ”

“The Governing Council will continue to make purchases of net assets under the PEPP with a total allocation of 1.85 trillion euros until at least the end of March 2022 and, in any case, until it deems the crisis phase of the coronavirus, “says the ECB.

In this way, the body chaired by Christine Lagarde does not dismantle the emergency aid plan launched during the pandemic and continues to give signs of strong support in the coming years, but it does introduce corrections in the face of the drop in unemployment and the recovery of inflation as life in the EU resumes relatively normally.

The ECB wants to move into this balance, since it does not lose sight of the risk that cutting support may pose prematurely, which could undo all the stimulus efforts that are being made and weigh on future growth, a dangerous prospect for the ECB.

Inflation, on the other hand, is now at a decade-high, but analysts are confident of a rapid decline early next year to fall back below the ECB’s 2% target through 2023.

On the one hand, the ECB acknowledges that the coronavirus crisis, the justification for the extraordinary emergency measures, is subsiding. On the other hand, it tries to assure the markets that it is not the beginning of a gradual exit from the stimulus policy.

The Governing Council of the ECB also confirmed its other measures: the level of interest rates remains unchanged, its forward-looking orientation on its probable future evolution, its purchases under the Asset Purchase Program (APP), its policies reinvestment and its longer-term financing operations.

“In support of the 2% inflation target and in line with its monetary policy strategy, the Governing Council expects the ECB’s key interest rates to remain at their current or lower levels until it sees inflation reaching the 2% long before the end of the year and during its projection horizon in a lasting manner, and considers that the progress made in core inflation is advanced enough to be consistent with the stabilization of inflation at 2% in the medium This may also imply a transitional period in which inflation is moderately above. ”

As the ECB has announced, “if favorable financing conditions can be maintained with asset purchase flows that do not exhaust the 1.85 trillion in the PEPP net purchase horizon, it may not be necessary to use the envelope in its entirety. Similarly, the endowment can be recalibrated if necessary to maintain favorable financing conditions to help offset the negative impact of the pandemic on the inflation trajectory. ”

Furthermore, “the Governing Council will continue to provide ample liquidity through its refinancing operations. In particular, the third series of specific longer-term refinancing operations (TLTRO III) remains an attractive source of financing for banks, that supports bank loans to companies and households. ”

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