European Central Bank Pledges to End Bond Buying Soon

Christine Lagarde, head of the European Central Bank (ECB), speaks to the media following a meeting of the ECB Governing Council in Frankfurt, Germany, on Oct. 28, 2021. (Thomas Lohnes/Getty Images)

The European Central Bank (ECB) has pledged to end its bond-buying activities in a few months as the region battles high inflation rates.

After looking at data since its previous meeting, the Governing Council, the main decision-making body of the ECB, judged in an April 14 meeting that net asset purchases under its asset purchase program (APP) must be concluded in the third quarter.

Purchases under APP will reach 40 billion euros ($43.19 billion) in April, 30 billion euros ($32.39 billion) in May, and 20 billion euros ($21.59 billion) in June, the bank said in a press release.

“The Governing Council also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation,” the ECB said.

Adjustments to ECB’s key interest rates will occur “some time after the end of the Governing Council’s net purchases under the APP.” Such rate adjustments will be gradual and will be determined by the Governing Council’s forward guidance, as well as its goal of maintaining inflation at 2 percent in the medium term.

The ECB has kept interest rates on main refinancing operations at zero percent, on marginal lending facility at 0.25 percent, and on the deposit facility at -0.50 percent.

Annual inflation for the eurozone in March 2022 was estimated to be at 7.5 percent by Eurostat, the statistical office of the European Union. This is up from 5.9 percent in February, with both figures being above the 2 percent inflation target of the ECB.

Energy is expected to have the highest annual inflation rate at 44.7 percent, followed by food, alcohol, and tobacco at 5 percent, nonenergy industrial goods at 3.4 percent, and services at 2.7 percent.

ECB President Christine Lagarde indicated that announcements regarding interest rate hikes could start at ECB officials’ next meeting in June.

“Our forward guidance will be determining and helping us determine at the June projection meeting if we decide to terminate net asset purchases, what exactly will be the policy going forward in terms of rates,” Lagarde said after the ECB meeting on April 14, according to a Bloomberg Quint report. She admitted that upside risks regarding the inflation outlook have “intensified,” especially in the near-term.

Eurozone manufacturing growth had slowed down sharply in March owing to the Russia–Ukraine war, according to a survey by S&P Global. It also suggested that the region’s manufacturing sector might fall into recession due to high inflation and the uncertainty in Ukraine.

“The war in Ukraine has created an ominous new headwind,” said Chris Williamson, chief business economist at S&P Global. “Rates of growth have cooled markedly amid sanctions, soaring energy costs, and new supply constraints linked to the war.”

Reuters contributed to this report.