LONDON (Reuters) – The European Central Bank said on Thursday it would slow bond purchases under its 1.85 trillion-euro Pandemic Emergency Purchase Programme (PEPP) from the 80 billion euros monthly pace registered in the past two quarters.
Markets reacted modestly to the move, which is a token step towards unwinding the emergency economic aid that propped up the bloc during the pandemic.
MARKET REACTION:
-Euro zone bond yields slipped while stocks and the euro rose rose briefly
COMMENTARY:
PREMIER MITON CHIEF INVESTMENT OFFICER NEIL BIRRELL
“The ECB is preparing to adjust policy for higher inflation, although they are hardly talking about it getting out of control. They will continue to walk the tightrope of providing support and not hurting growth prospects.”
AXA GROUP CHIEF ECONOMIST GILLES MOEC
“I think it has been largely priced by the market.”
He added the focus was now on whether Lagarde talked about a potential end date for the PEPP programme, which would be a true tapering “I think the council is far to divided for her to start deliberating on that.”
NATIXIS HEAD OF EUROPEAN MACRO RESEARCH DIRK SCHMACHER
“It is not technically tapering as they could still spend all of the envelope.”
AFS Group (AMSTERDAM) ANALYST ARNE PETIMEZAS
“Market seems to shrug off the taper language, as in the greater scheme of things the undershooting of the purchase commitment won’t be large, if they undershoot at all. And market had already moved on the taper stuff in past few weeks.
“Real hard decisions have been delayed: about what they are going to do with QE when PEPP ends in March, and what will happen when the TLTRO teaser rate expires in June.”
CAPITAL ECONOMICS CHIEF EUROPE ECONOMIST ANDREW KENNINGHAM
“The key change in today’s policy statement is that rather than repeating its commitment to conduct PEPP asset purchases at ‘a significantly higher pace than during the first months of the year’, the ECB now plans to purchase at a ‘moderately lower’ pace than in the previous two quarters.
“We suspect that this will translate to PEPP purchases of around €70bn per month, compared to over €80bn per month between May and July (and less during August). That would mean total purchases of €90bn per month including the €20bn per month under the APP in the coming quarter. Such a change will make a negligible difference to overall financing conditions.
“There was no change in the forward guidance about the Asset Purchase Programme (APP) under which the Bank still plans to continue making net purchases until ‘shortly before it starts raising […] interest rates’. This is despite some speculation that the link between rate hikes and the APP would be dropped – a move which could have paved the way for an earlier end to all ECB asset purchases.”
(Reporting by European markets team; Compiled by Sujata Rao; Editing by Tommy Wilkes)
