► How will the ECB act in the coming months?
The European Central Bank (ECB) announced on Thursday 16 December the reduction of its support system for the economy. Its main asset purchase program, the PEPP (Pandemic Emergency Purchase Programme), set up in March 2020 and which involved 1,850 billion euros, will end in March 2022. However, in order not to cut its support, the ECB will temporarily reinforce another program, the APP (Asset Purchase Programme) which concerns 20 billion per month.
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Currently the ECB is injecting 70 billion per month into these public and private bond buyback operations through the PEPP and the APP. It will drop to 40 billion in the second quarter of 2022, then 30 in the third, before returning to 20 in the fourth.
“The eurozone economy is recovering. However, we remain in a situation of uncertainty due to the Omicron variantsaid Christine Lagarde, President of the European Central Bank. This is why we have decided to gradually reduce our purchases, without abrupt transition. »
► Why is the Central Bank taking this turn?
Today, the European economy is in a rebound phase. The ECB forecasts sustained growth for 2022 in the euro zone, at 4.2%. “Overall, the patient is doing better. So it is normal to reduce the drug dosage”, summarizes Samy Chaar, chief economist of the Lombard Odier bank. But we must also avoid weaning him suddenly.
→ READ. In France, inflation remains under control
The United States is embarking on the same movement. The US Federal Reserve confirmed on Wednesday 15 December that it will reduce its bond purchases. It goes even further by paving the way for interest rate hikes from next year, while price increases in the United States reached 6.8% over one year in November.
It is also the choice of the Bank of England (BoE). On December 16, it announced a surprise increase in its key rate of 0.25%, while inflation reached 5.1% over one year in November in the United Kingdom. It is the first central bank of a G7 country to raise its rate.
The ECB, on the other hand, will wait. Christine Lagarde has indicated that a rate hike in 2022 is “very unlikely”. The institution estimates that inflation should be 3.2% next year in the euro zone, above what it had anticipated, but that it will return in 2023 below 2%, its medium objective. term.
► What are the risks linked to the withdrawal of these unconventional measures?
For central bankers, steering during this period is difficult. Strong growth is back but remains under threat from a fifth epidemic wave. On the one hand, the monetary institutes must not thwart this recovery; on the other, they must avoid letting inflation take hold. This is why a normalization of monetary policies must be initiated gradually.
→ THE FACTS. The US central bank begins to return to the pre-crisis situation
In normal times, central banks retain the possibility of lowering rates to revive activity. Today, this is no longer possible because they are at zero. Returning to higher rates will open the possibility, in the event of a new crisis, to take stimulus measures. But this increase cannot occur too quickly, so as not to increase the debt of the States and break the momentum of rebound.
“The United States is already back to the pre-crisis level of activity, observes Samy Chaar. This is not yet the case in Europe where the recovery is not as complete as in the United States. But if all goes well, the ECB should be in a position to raise rates in late 2023 or early 2024.”