The ECB will accelerate its debt buybacks but is not worried about inflation - France 24

Frankfurt (AFP)

The European Central Bank decided Thursday to accelerate the pace of its debt buybacks in order to calm the nervousness of the markets in the face of a recent rise in bond rates while brushing aside fears of an inflation slippage.

For several weeks, the rise in ten-year bond rates in the United States has reflected the risk of overheating prices, linked to the imminent recovery, which could encourage central banks to tighten their accommodative monetary policy.

The ECB had let it be known that it would not stand idly by and act to prevent an "undesirable" contagion of these tensions at rates in the euro zone, according to its president Christine Lagarde.

The institute took a step in this direction Thursday by announcing that the pace of purchases under its emergency pandemic program (PEPP) will be "significantly increased in the coming quarter compared to the first months of the year "in order to ensure that economic players can continue to finance themselves under good conditions.

The guardians of the euro have room for improvement because the initial envelope counts 1.850 billion euros to be committed by March 2022 and more than half of this sum has not yet been spent.

These buybacks allow States in particular to borrow at low cost to stimulate investment and employment weakened by the Covid-19 pandemic.

- Temporary price increase -

This accommodating monetary policy should not be called into question, stressed Ms. Lagarde, because "the short-term economic outlook remains uncertain", given the dynamics of the epidemic and the deployment of vaccination slower than expected.

"GDP should contract again during the first quarter of the year," predicted Ms. Lagarde but the Frankfurt institution continues to expect a sharp rebound in activity in the euro zone for the rest of the year to leave its growth forecasts almost unchanged: 4% in 2021, 4.1% in 2022 and 2.1% in 2023.

"Economic development remains uneven across countries and sectors, the service sector being hit harder by the restrictions than the industrial sector, which is recovering more quickly," she noted.

For Marcel Fratzscher, president of the German economic institute DIW, "the ECB has not given in to pressure from the Germans who criticize its expansionist position" and "its new forecasts show that no one should worry about high inflation" .

The inflation rate climbed to 0.9% in January and February in the euro zone, exceeding expectations and fueling fears of overheating prices in the euro zone.

In the process, bond yields edged up.

This anticipation is not justified, assured the ECB on Thursday, which only slightly raised its inflation forecasts for 2021 (1.5%) and 2022 (1.2%), still far from the target. close to 2% targeted by the institution.

If the rise in prices is accelerating, it is "mainly due to certain transitory factors and a rise in energy prices", noted Ms. Lagarde, according to which "these factors should fade away (.. .) early next year ".

At the same time, weak demand and "strong sluggishness" in the labor market are powerful brakes to price slippage.

- No control of long rates -

For the rest, the ECB has maintained its monetary course, without strengthening its anti-crisis arsenal, "not wishing to give the impression that monetary policy decisions are guided by short-term market sentiment", according to Daniel Lenz, strategist at DZ Bank.

Christine Lagarde thus warned that the ECB was not intended to practice a policy of controlling long rates, as the Central Bank of Japan does, for example, with clearly communicated objectives on certain loan durations.

The monetary institute will instead monitor a whole battery of indicators to judge whether financial conditions remain favorable.

It will also continue the old debt buyback program, the "QE", at a rate of 20 billion euros per month with no time horizon.

Banks in need will continue to benefit from waves of giant and cheap loans.

Finally, the three key rates were kept at their historic lowest, in particular the negative one of 0.50% on the excess liquidity of banks which are not injected into the economy.

© 2021 AFP