ECB likely to continue emergency pandemic stimulus

Inflation concerns, coronavirus stimulus spending and interest rates will be at the top of the agenda today when the European Central Bank’s Governing Council meets.

ECB President Christine Lagarde is not expected to announce any tapering of the pandemic bond-buying program, despite asset purchasing slowing in some other corners of the globe.

Officials reassured investors in the last ECB meeting they planned to stay on the current course due to an uncertain economic outlook in Europe. The bank was forced to revise recovery forecasts this winter as Europe’s vaccine roll-out struggled to pick up steam and the continent was slammed with second and third waves of COVID-19.

However, some analysts worry Europe’s loose monetary policy is causing the economy to overheat. The bloc’s largest economy, Germany, recorded a jump in inflation by 2.4 percent in May, the highest rate since 2018.

“The reopening of the economies will now bring many price markups in the sectors hit the most by the lockdowns, be it as a result of regaining previous losses or passing through higher costs,” wrote ING Economist Carsten Brzeski in a research note.

The ECB’s Pandemic Purchase Programme has so far acquired more than $1.1 trillion in European bonds since it was launched at the start of the pandemic. It has the scope to acquire $2.21 trillion dollars of assets before March 2022.

Some expect the ECB to carry on with the program for the rest of the summer, with a gradual slowdown beginning in September.

ECB economists are likely to be cautious at this point, as global markets have shown volatility in recent months when the threat of monetary stimulus withdrawals have been on the table.

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