ECB resolution April 2021


The President of the European Central Bank, Christine Lagarde, speaks to European lawmakers during a plenary session in the European Parliament in Brussels on February 8, 2021.

Olivier Matthys | AFP | Getty Images

LONDON – The European Central Bank decided on Thursday to leave its policies unchanged as market participants look for clues as to when their massive monetary stimulus could wear off.

“The Governing Council decided to reaffirm its very accommodative monetary policy stance,” the ECB said in a statement on Thursday.

The President of the European Central Bank, Christine Lagarde, will answer questions after the last meeting at 2:30 p.m. local time.

The central bank said last month it would increase government bond purchases – although they are still within the planned range of 1.85 trillion euros ($ 2.2 trillion) by March 2022 – to keep pace with soaring bond yields in the euro area to counteract. At that point, the ECB was raising concerns about a sharp spike in the cost of borrowing for euro area governments before the economy fully recovered from the coronavirus shock.

Data from Deutsche Bank showed the ECB bought bonds worth € 74 billion in March, up from € 53 billion and € 60 billion in February and January.

“The Governing Council assumes that the purchases under the PEPP in the current quarter will continue to be made significantly faster than in the first few months of the year,” said the ECB on Thursday and suggested buying more bonds in the coming months compared to the first months of the year.

Eyes on June

Market participants expect the June meeting, the next on the ECB calendar, to be the next key moment for monetary stimulus in the euro area.

Hawkish ECB members hope that with vaccination rates rising and economies slowly reopening, they can start talks about when to ease incentives. However, this will depend on how the pandemic and vaccination programs develop. Many European nations were forced to return to strict coronavirus lockdowns after a third wave of infections over Easter.

The ECB signaled on Thursday that everything will depend on how the financing conditions develop.

“The envelope can be recalibrated if necessary to maintain favorable funding conditions and counteract the negative pandemic shock on the path of inflation,” the ECB said in a statement.

The ECB’s political mandate is to keep inflation close to but below 2%. Current forecasts assume that inflation will peak at 2% in the final quarter of 2021, but will decrease over the course of 2022.

The market reaction after the announcement was subdued as it was in line with analysts’ expectations not to take any further action.

In March, the ECB forecast a GDP rate (gross domestic product) of 4% for 2021 and 4.1% for 2022.

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