ECB Accelerates Bond Buys as Ukraine Crisis Heightens Inflation Outlook

Source: European Central Bank

The European Central Bank has said it will cut its asset purchases to 40 billion euros in April and further down to 30 billion euros and 20 billion euros in May and June, respectively. DAX is down -2.97%, EURUSD is down -0.57%.

• The move set the path for a quicker reduction in ECB’s bond-buying after, last month, saying it will repurchase 40 billion euros a month in the second quarter, 30 billion euros a month in the third, and 20 billion euros after that.
• ECB attributes the quicker bond tapering to the inflation pressures due to the Russian invasion of Ukraine, which it describes as a “watershed for Europe.” The governing council said it will pursue whatever action is needed to maintain price stability and protect the financial system. 
• ECB says it will end the net purchases under the asset purchase program in the third quarter if further data shows that the medium-term inflation outlook will not slowdown.
• The bank said that its 1.85 trillion emergency bond-buying program would stop as planned by May end.
• The ECB still maintained the deposit rate at minus 0.5% but still said it was ready to readjust all the policy instruments to achieve its inflation target of 2%. ECB expects inflation to stabilize around the target by 2024.
• The move by the ECB comes even as its president Christine Lagarde said that the Ukrainian war had “material impact on economic activity.” She cited the case of higher energy costs, weaker confidence, and disruptions of the business as key concerns. 
• Carsten Brzeski, head of macro research at ING, says that the decision of the ECB is made in light of the growing stagflation risk, which signals it could hike rates before the end of 2022.