The devilish current economic context prevents any meeting from being processed. Not even on Holy Thursday. The European Central Bank (ECB) has announced that it plans to end its debt purchases as of the third quarter of the year in view of “the new data available since its last meeting”, as reported in a statement. These reflect that “the conflict” in Ukraine and “the uncertainty associated” with the war are “seriously damaging business and consumer confidence” and that, in turn, “inflationary pressures have intensified” in many sectors . In silver: less growth and more inflation. Until now, the ECB has considered the third quarter as the most plausible time to finalize asset purchases. After this week’s meeting, it has already decided to give another acceleration to the conclusion of the debt purchase plan and set that date as a limit. The entity’s Governing Council has also decided to leave interest rates intact, at 0%.
The President of the European Central Bank (ECB), Christine Lagarde, appears this Thursday to report on the decisions adopted by the Governing Council. Analysts agreed this week that they were not expecting big announcements, since the French company already announced in March that it was accelerating the end of the stimulus in the face of the inflationary spiral. Specifically, the institution was gradually reducing its debt purchases to leave them at 20,000 million euros in June. That should leave him a free hand to see if medium-term inflation is in line with or above the 2% target or sinks back below that mandate. And based on that, decide whether or not to continue with debt purchases. But the ECB seems to have already made up its mind: “At its meeting today, the Governing Council considered that the new data available since its last meeting reinforces its expectation that net purchases under its asset purchase program should end in the third trimester.
The minutes of the last ECB meeting show how within the council the differences between hawks Y pigeons have been accentuated. The former asked to end the debt programs in order to start raising interest rates in the summer. With inflation at 7.5% in the euro zone, Berlin continues to press for the institution to follow in the footsteps of the Bank of England or the Federal Reserve and put an end to the era of ultra-cheap money to stop price increases. However, the south asked to wait for the development of the war in Ukraine, which is already putting the economic recovery in the euro zone in check.
The ECB decided to use diplomacy again to find an intermediate solution: reduce monthly purchases to 20,000 million euros in June and then decide. So far, the ECB has opted for a “normalization” of monetary policy rather than a Washington- or London-style tightening. That means gradually reducing the purchase program and adapting, step by step, to the medium-term inflation that their perspectives set.
Among the members who are most in favor of a lax policy, the opinion is also spreading that a rise in interest rates is not effective in the face of a shock of offer. In other words, making money more expensive will not reduce energy or undo bottlenecks or solve distribution problems. On the other hand, they do see with concern how risk premiums continue to rise since, at the beginning of the year, Lagarde opened the door to a rate hike. Italian debt, for example, is already yielding more than 2.5%. The hawkswith Germany in the lead, believe that inflation has already spread to the entire shopping basket and they believe that expectations that it will continue to rise can only be curbed with a rate hike.
He knows in depth all the sides of the coin.