La ECB reduces the range of App securities purchase plan, announcing that the value of operations will gradually drop: 40 billion euros in April, 30 billion in May and 20 in June. What happens next will depend on economic developments and new macroeconomic data.
Previously, the ECB had planned to keep app purchases at 40 billion for the whole of the second quarter of 2022, then drop them to 30 billion in the third quarter and then to 20 billion a month "as long as necessary".
Now, Frankfurt specifies that App may be discontinued in the third quarter whether future data predicts that inflation will not ease with zero purchases.
ECB: rate hike is on the horizon
Not only that: the ECB has confirmed the interest rates on the euro at their lowest, but started talking concretely about the possibility of a hike. The increase could comea certain period of time after the end of net purchases with the App program, and it will be gradual", it is read in the Frankfurt Note disclosed at the end of the Governing Council meeting.
For the time being, therefore, the rate on main refinancing operations remains at zero, that on marginal refinancing operations at 0,25% and that on deposits at -0,50%.
The reaction of the spread
Immediate reaction on the government bond market to what was announced by ECB. The spread between the yields of ten-year BTPs and Bunds, which previously hovered around 150 basis points, has risen to 160. Both the yield on the Italian ten-year bond rose, at 1,88%, and that of the German bond which reached +0,28%.
Expansive steering is not excluded
On the other hand, the ECB does not rule out the possibility of adopting opposite measures of an expansive nature in the coming months if the inflation outlook or financial conditions change.
The Eurotower also reiterates that, according to the developments in the war between Russia and Ukraine, will assume "any action necessary to ensure price and financial stability".
Pandemic-related emergency purchases
As regards the emergency purchase plan linked to the pandemic (PEPP), the ECB confirms that it will end at the end of this month.
Update – Lagarde: “Inflation is likely to stabilize”
In the press conference at the end of the Governing Council, the number one of the Eurotower, Christine Lagarde, further strengthened the prospect of an increase in rates: "The Governing Council of the ECB - she explained - believes more and more inflation is likely to stabilise” to the objective levels pursued by the ECB itself.
GDP revised downwards
Lagarde then said that the ECB has revised al lower forecasts for economic growth of the euro area for this year, while it markedly raised inflation expectations. Now for 2022 a GDP growth of 3,7% is expected, much less than the +4,2% expected just three months ago. Expectations for 2023 and 2024 were confirmed respectively by plus 2,8% and plus 1,6%.
Inflation revised upwards
As for theinflation, now the ECB technicians predict rather high levels: 5,1% this year, 2,1% next and 1,9% in 2024. Three months ago the forecasts spoke of 3,2% on 2022 and 1,8 % on 2023 and 2024.
Lagarde: We are not accelerating
In any case, Lagarde was keen to underline one point: "We are not accelerating" on the normalization of the monetary line.
