ECB, "We Will Expand Eurozone Government Bond Purchases"…Interest Rate Stabilization

[Image source=Yonhap News]

[Asia Economy Reporter Kim Suhwan] The European Central Bank (ECB) has announced its plan to increase Eurozone government bond purchases to alleviate concerns over rising interest rates.

On the 11th (local time), the ECB issued a statement declaring that it will significantly expand the volume of government bond purchases over the next three months. These purchases are conducted through the ongoing Pandemic Emergency Purchase Programme (PEPP).

Previously, the ECB introduced the PEPP last year in response to growing financial market instability caused by the COVID-19 pandemic. The PEPP was designed to purchase Eurozone government bonds worth 1.85 trillion euros (2,507 trillion won) by March 2022 to stabilize financial markets.

CNBC reported that the ECB’s bond purchases earlier this year were below the initially planned targets, and the bank intends to substantially increase purchases going forward to meet its policy goals. The ECB stated, "Based on the current financial market conditions and inflation outlook analysis, we have determined there is considerable room to increase bond purchases under the PEPP."

The ECB added, "The Governing Council will flexibly adjust the volume of bond purchases according to market conditions, prioritizing the policy objectives of economic recovery from recession and inflation control."

The market response to the ECB’s announcement was generally positive. In February, ahead of the U.S. government's approval of a large-scale stimulus package, concerns over inflation and interest rate hikes caused Eurozone government bond yields to rise. However, on the 11th, as the ECB reaffirmed its plan to significantly increase bond purchases, Eurozone bond yields fell again. The German 10-year government bond yield dropped to its lowest level since February 18, while the Italian 10-year government bond yield fell by about 10 basis points to 0.57%.

Meanwhile, the ECB also released its economic outlook for the Eurozone, forecasting a 4% GDP growth this year compared to the previous year, and a 4.1% growth next year. ECB President Christine Lagarde stated, "With the expansion of vaccinations and the expected easing of lockdown measures in various countries, economic recovery will become possible." However, she noted delays in vaccination progress in some countries, emphasizing, "COVID-19 will remain a threat to the Eurozone economy for the foreseeable future," and stressed that "the stimulus budget agreed upon by the European Union (EU) last year must be swiftly implemented."

This content was produced with the assistance of AI translation services.