ECB Officials Downplay Talk of Tapering Bond Purchases Amid Eurozone Recovery Hopes

Strategic Insights -

As the European Central Bank's (ECB) officials expressed confidence in the eurozone economy's rebound, ECB President Christine Lagarde cautioned against premature talk of tapering the bank's emergency bond purchases. Despite the improving outlook, fueled by accelerated vaccination rates and expected easing of containment measures, Lagarde emphasized the need for an "ample degree of monetary accommodation" and a coordinated fiscal stance from eurozone governments. The ECB's decision to maintain its current accommodative monetary policy stance and recent elevated pace of asset purchases has been met with a strengthening of European bond markets, with demand for Germany's benchmark 10-year Bunds rising.

Key Takeaways:

  • Christine Lagarde, ECB President, stated that tapering bond purchases is "simply premature" and emphasized the need for an "ample degree of monetary accommodation".
  • The ECB's governing council decided to reconfirm its accommodative monetary policy stance and vowed to maintain the recently elevated pace of asset purchases.
  • The eurozone economy is expected to contract in the first quarter but rebound with growth of 1.3 per cent in the three months to June.
  • The ECB has maintained its deposit rate at minus 0.5 per cent and reiterated its stance on its €1.85tn emergency bond-buying programme.
  • Jacob Nell, head of European economics at Morgan Stanley, expects growth to be robust and inflation to hit the ECB's target in the second half of 2021.

Statistics:

  • The ECB's €1.85tn emergency bond-buying programme.
  • 1.3 per cent growth expected in the three months to June.
  • 0.02 percentage points decrease in yields for Germany's benchmark 10-year Bunds.
  • -0.28 per cent yields for Germany's benchmark 10-year Bunds.
  • The European Commission's consumer confidence indicator hit its highest level since the start of the crisis in April.
  • €1.85tn: the size of the ECB's emergency bond-buying programme.
  • -0.5 per cent: the ECB's deposit rate.

Sources:

  • Reuters
  • The European Central Bank
  • Morgan Stanley (Jacob Nell, head of European economics)