ECB confirms plans to end Q3 bond buying

By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) – The European Central Bank left monetary policy unchanged on Thursday, sticking to plans to slowly scale back extraordinary stimulus as concerns about record inflation outweigh fears of a war-related recession.

The ECB has been slowing the pace of money printing for months, but has outlined only a weak timeline for reducing support, stressing flexibility as the conflict in Ukraine and high energy prices could suddenly change the landscape.

Confirming earlier guidance, the ECB said it plans to reduce bond buying, known as quantitative easing, this quarter and end it in the third quarter.

However, interest rates will only rise “at some point” after the end of bond buying and the movement will be gradual, the ECB added.

“The board assesses that data since its last meeting reinforces its expectations that net asset purchases under APP (the Asset Purchase Program) should be completed in the third quarter,” the ECB said in a statement.

The volume of bond purchases in the third quarter will be determined later.

Among the world’s most cautious central banks, the ECB lags far behind most of its peers, many of whom have started raising rates in the past year. In the past two days alone, the central banks of Canada, South Korea and New Zealand have raised borrowing costs.

“Any ECB rate adjustments will be made sometime after the end of the Board’s net buying under APP and will be gradual,” the ECB added.

The ECB has bought nearly 5 trillion euros of public and private debt since 2015, aiming to revive inflation, which has been below the bank’s 2% target for years after the bloc’s debt crisis.

But inflation has unexpectedly spiked in recent months, leaving policymakers in a quandary as they seek to reconcile the two opposing economic forces.

On the one hand, inflation has already hit a record high of 7.5%, with higher expectations. On the other hand, the eurozone economy has stagnated at its best, with the impact of the war in Ukraine affecting households and businesses in the 19-nation bloc.

Markets now expect a total of 70 basis points of ECB deposit rate hikes — currently at -0.5% — this year, although none of the 25 ECB officials have called for such aggressive tightening.

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