ECB calls time on emergency pandemic bond buying

The European Central Bank (ECB) announced on Thursday it will roll back its €1.85 trillion ($2.09 trillion) Pandemic Emergency Purchase Program (PEPP).

The crisis-era stimulus was launched in March 2020 to ease the impact of the coronavirus pandemic and will wind down in March 2022.

 "Overall, society has become better at coping with the pandemic waves and resulting constraints. This has lessened the pandemic impact on the economy,'' ECB President Christine Lagarde said.

But the ECB kept the door open to restart emergency support.

Concern over Omicron's impact

The emergence of the omicron COVID-19 variant, new pandemic lockdowns, and nagging supply chain bottlenecks have limited the ECB's governing council to commit.

"We need to maintain flexibility and optionality in the conduct of monetary policy," Lagarde said. "The spread of new coronavirus variants is creating uncertainty."

The ECB will reinvest funds from maturing bonds in PEPP back into the market at least until at least the end of 2024.

That decision and the bank call to ramp up a pre-crisis asset-buying scheme to ease the transition drew the ire of governors from Germany, Austria and Belgium.

Sources told the Reuters news agency they argued that the reinvestment commitment is too long and could bind the bank even as inflation threatens to exceed the target of 2%. The ECB raised its inflation projections across the board and now sees it at 3.2% next year.

The Asset Purchase Programme (APP) will be boosted from €20 billion a month currently to €40 billion in the second quarter. In the third quarter, bonds with a volume of €30 billion are to be purchased monthly.

Eurozone interest rate remains unchanged

The ECB kept the key interest rate for the currency area of 19 states at a record low of 0%.

Critics accuse the ECB of using all the cheap money to fuel inflation.

Outgoing Bundesbank President Jens Weidmann had repeatedly warned against underestimating the risk of too high inflation.

Monetary policy should "not stick too long to its currently very expansionary course," he said. 

lo/sms (AFP, Reuters)