After the inflation rate in the eurozone reached a high of 7.5% in March, the European Central Bank (ECB) and the bank’s president Christine Lagarde explained on Thursday the central bank’s bond purchases will cease in Q3. Reiterating what she said at a press conference in Cyprus two weeks ago, Lagarde stressed on Thursday that inflation “will remain high over the coming months.”
European Central Bank plans to end the Asset Purchase Program in Quarter Three
Inflationary pressures are severe in the eurozone as high consumer prices have ravaged residents of the European Union (EU). In March, data from the ECB had shown consumer prices skyrocketed to 7.5% and the ECB’s president Christine Lagarde expected energy prices to “stay higher for longer.” On April 14, members of the ECB met and then told the press that the central bank plans to cease its APP (asset purchase program) by the third quarter.
“At today’s meeting the Governing Council judged that the incoming data since its last meeting reinforce its expectation that net asset purchases under the APP should be concluded in the third quarter,” the ECB disclosed to the press. The benchmark rate will be hiked by the bank after the APP is over. However, in Lagarde’s opinion, it will depend on what happens with the current Ukraine-Russia war.
The EU’s economic improvement, Largade said “will crucially depend on how the conflict evolves, on the impact of current sanctions, and on possible further measures.” The central bank’s message on Thursday highlighted that benchmark bank rates won’t change until end of the APP. “Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual,” the ECB detailed in a statement.
Fidelity International Global Macroeconomist: ECB Faces a ‘Tough Policy Trade-off’
Following the ECB’s and Largade’s statements, the gold bug and economist Peter Schiff threw in his two cents on Twitter about the central bank keeping rates suppressed. “The ECB announced interest rates will stay at zero until it judges inflation will stabilize at 2% over the medium term,” Schiff tweeted. “Eurozone inflation is currently 7.5%. “Eurozone inflation is currently 7.5%. Europeans are stuck with inflation well above 2% indefinitely.” Schiff continued:
Dollar is currently rising against euro due to the Fed still pretending that it will fight inflation and the ECB pretending that inflation is transitory. When both banks stop pretending to be against the euro, the dollar and gold will collide against each other.
Speaking with CNBC on Thursday, global macroeconomist at Fidelity International, Anna Stupnytska, said the European Central Bank faces a “tough policy trade-off.” “On the one hand, it is clear that the current policy stance in Europe, with interest rates still in the negative territory and the balance sheet still growing, is too easy for the high level of inflation which is becoming broader and more entrenched,” Stupnytska remarked after the ECB’s statements. Fidelity International’s economist also added:
On the other hand, however, the Euro area is facing a huge growth shock, simultaneously driven by both the war in Ukraine and China’s activity hit due to zero-COVID policy. Data from high frequency already show a drastic drop in Euro-area activity between March and April, while consumer-related indicators are alarmingly low.
Do you agree with the ECB’s announcement that bonds purchases would cease in Q3? What about the debate over raising the benchmark banking rate? Please comment below to let us know your thoughts on this topic.
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