ECB Sticks To Ending Emergency Support In March Despite New COVID Threat

The ECB clings to end emergency support in March despite a new COVID threat
By Belén Carreño

The European Central Bank is still planning to complete its emergency bond purchases in March, despite threats from a new version of the corona virus and rising infections, two senior ECB officials said on Friday.

Authorities and global investors on Friday reacted in panic to a new version of the corona virus identified in South Africa, with the EU and UK being among those who tightened border controls, when researchers sought to find out if the mutation was resistant to the vaccine.

But ECB President Christine Legard and Vice President Luis de Gindus have both confirmed their expectations that the ECB’s Emergency Acquisition Program (PEPP) will end in March, with an expected decision next month.

“PEPP will end as planned with a size of 1.85 trillion euros ($ 2.1 trillion) at the end of March,” de Ginedos said at an event in Spain. “We will discuss alternatives in December.”

Laguard also said in an interview with the Frankfurter Allgemeine Zeitung published on Friday that she expects to stop adding to PEPP’s bond warehouses in early 2022.

But Spanish central bank governor Pablo Hernandez de Coss, an influential policy dove on the ECB’s board, was more cautious.

“Today, new information has emerged, which must be taken into account, and policymakers can not ignore this information,” he told the Spanish event.

In an earlier speech at an event in Milan, Italian Bank Governor Ignacio Visco also said that the recent rise in the number of infections has pushed back the “post-COVID perspective”.

“The uncertainty remains high, mainly reflecting a health condition that has once again become a source of considerable concern,” added Visco, also a policy dove.

Stock markets have fallen sharply and investors have pushed interest rate hike bets on Friday amid concerns the new version may elicit immune responses and could be more leveraged. [MKTS/GLOB]

The ECB has promised not to raise interest rates next year and some policymakers have called for continued support in the bond market even after the end of the PEPP.

De Cos also said the ECB had other tools to support inflation in the eurozone, such as its regular bond buying program.

“Once the plague plan is over, let’s say vigorously, the rest of the monetary policy tools – our regular plan, long-term financing operation and interest rates – are at our disposal to achieve 2% inflation in a sustainable way,” de Cos said at the Spanish event.

Inflation in the eurozone reached 4.1% last month, but the ECB expects it to fall below the 2% target in 2023.

De Gindus noted the ongoing challenges, including supply bottlenecks, but said the high vaccine rate in Europe had made the outlook better than earlier in the epidemic.

“We have a differentiating factor, which is a vaccine,” de Gindus said. “So I think the impact on the economy is going to be more limited. I’m relatively optimistic.”

He added that the economy has shown the ability to adapt to the epidemic and predicted that the eurozone economy will grow by about 5% this year and next year in a strong way.

($ 1 = 0.8839 euros)

(Additional report by Emma Pindo, Jesus Aguado, Giuseppe Punta and Julia Segerty; written by Francesco Canfa; edited by Alison Williams, Susan Fenton and Toby Chopra)

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