European Central Bank keeps interest rates steady

European Central Bank President Christine Lagarde attends a debate during a plenary session of the European Parliament on February 14, 2022 in Strasbourg, eastern France.

Frederic Florin | Afp | Getty Images

LONDON – The European Central Bank announced on Thursday that it will end asset purchases faster than planned, as it assesses the economic fallout from… Russia’s invasion of Ukraine.

The central bank said in a statement that it would aim to end the bond-buying program in the third quarter. She added that she is ready to reconsider this decision if expectations change.

“If the incoming data supports expectations that medium-term inflation expectations will not weaken even after our net asset purchases are over, the board will complete net purchases under the APP in the third quarter,” the bank said, referring to the asset purchase program.

It said net monthly purchases under the program would reach 40 billion euros ($44.5 billion) in April, 30 billion euros in May and 20 billion euros in June.

The central bank kept interest rates unchanged on Thursday, leaving the benchmark refinancing rate at 0%, the interest rate on the marginal lending facility at 0.25% and the interest rate on the deposit facility at -0.5%.

Market participants will closely watch European Central Bank President Christine Lagarde’s press conference at 1:30pm London time for hints on Europe’s growth prospects. In light of the escalating crisis.

The euro It was trading around $1.1079 after the decision, not much changed for the session. The single currency rose 1.6% on Wednesday to record its Highest daily jump in nearly six years.

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The European Central Bank described Russia’s conflict with Ukraine as a “turning point for Europe,” while the Governing Council reiterated its pledge to “take any action required” to pursue price stability and protect financial stability.

The European Central Bank meeting in Frankfurt, Germany, comes exactly two weeks after Russian President Vladimir Putin launched a full-scale invasion of Ukraine. The conflict rocked the global economy and sent shock waves through financial markets, as Western allies imposed a barrage of sanctions against Russia.

Energy and commodity prices rose as the Kremlin stepped up its attack on Ukraine, raising fears among economists that the eurozone economy could face an inflationary shock accompanied by a recession. This points to the toxic mixture of slow economic growth and high inflation.

‘completely opposite’

The European Central Bank’s decision to end asset purchases sooner than planned came as a surprise to the markets. Analysts widely expected the central bank to delay any political announcements until it could better understand the economic impact of the Ukraine crisis.

“I think what Christine Lagarde and the ECB’s governing board have been able to do is buy themselves some flexibility here,” Megan Green, chief global economist at consultancy Kroll Institute, told CNBC on Thursday.

“They have accelerated the process of ending the asset purchase program, but they also put some water in between when they finish tapering off and start raising prices, which gives them a lot of flexibility in terms of pivoting when the data comes out.”

However, Green said that in her view “the ECB is doing all of this completely in reverse” and should have looked at interest rate movements before scaling back asset purchases.

“The asset purchase program is the only way the European Central Bank can realistically address the fragmentation in the eurozone. Now the eurozone is facing another disproportionate blow to the economies of its member states,” Green said.

She added that it would be “really difficult” for the ECB to launch the asset purchase program again if it needed to.

Consumer prices in the 19 countries that use the euro currency have risen to record levels for four consecutive months, the last of which is It reached 5.8% in February. The European Central Bank is targeting an inflation rate of 2% over the medium term.

It is also feared that the conflict in Ukraine will cause more problems for supply chains already disrupted by the coronavirus pandemic, negatively impacting economic growth along with higher oil and gas prices.

Reuters poll in early March have found Most economists expect the ECB to wait until the last few months of the year to raise interest rates. However, there is currently no consensus for the month that the central bank may end its asset purchase program.

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