Belgium (Brussels Morning Newspaper) The European Central Bank announced on Thursday that it would hold on to its plans on ending its stimulus programme in the third quarter, but had provided no details and no further timeline, choosing instead to keep its options open.
“We will maintain optionality, gradualism and flexibility in the conduct of our monetary policy,” said ECB President Christine Lagarde in an online news conference following a meeting of the bank’s policymakers.
The bank kept its main policy rate unchanged at negative 0.5% interest, and stressed that “calibration of net purchases for the third quarter will be data-dependent,” reflecting the policymakers’ assessment of the economic outlook at that time.
Lagarde noted that the upside risks to the inflation outlook have intensified since the last meeting, stressing it could stay higher if price expectations continue to rise and supply chain problems intensify. “However, if demand were to weaken in the coming months it would weaken inflationary pressures,” said Lagarde, adding that the bank will “deal with interest rates when we get there”.
The ECB has bought approximately 5 trillion euro of public and private debt since 2015, in an effort to rekindle inflation that had consistently ranked below the bank’s 2% target for years. However, as the inflation had unexpectedly soared in recent month, the policymakers fear that rising the policy rates could further hamper the stagnating European economy, already struggling with the fallout of the war in Ukraine and economic sanctions levied against Moscow.
Energy prices, pushed up by the war in Ukraine, are draining household savings, while uncertainty surrounding the conflict is stifling corporate investments. As lenders are tightening access to credit lines, all the ingredients are in place to cause a significant economic downturn.