ECB Launches Aggressive Bond Purchases... Showing a Different Approach from Powell

ECB Specifies Accelerating PEPP Purchase Pace in Monetary Policy Statement
Fed Chair Jerome Powell Acknowledges Inflationary Pressures, Reiterates Previous Stance

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[Asia Economy Reporter Gong Byung-sun] The European Central Bank (ECB) has decided to accelerate the pace of bond purchases. This move aims to respond swiftly to the recently rising concerns over rapid interest rate hikes. As a result, there are opinions that the actions of ECB President Christine Lagarde and Federal Reserve (Fed) Chair Jerome Powell are diverging.

On the 11th (local time), at a policy meeting held in Frankfurt, Germany, the ECB decided to keep the benchmark interest rate unchanged while accelerating government bond purchases. The size of the Asset Purchase Programme (APP) will be maintained at 20 billion euros (approximately 27.1 trillion won) per month until just before the interest rate hikes, and the Pandemic Emergency Purchase Programme (PEPP) will continue with a total of 1.85 trillion euros at least until the end of March next year.

A key point to note is the change in the pace of PEPP purchases. The ECB added the phrase "PEPP purchases in the next quarter will be conducted faster than at the beginning of this year" to its monetary policy statement. As of the end of January, about 94.8% of the assets purchased under PEPP were government bonds, indicating that the ECB is likely to engage in more aggressive government bond purchases.

The ECB increased the pace of PEPP purchases to flexibly respond to rising interest rates. In the second quarter of last year, the ECB net purchased assets worth 339.5 billion euros through PEPP, 212.1 billion euros in the third quarter, and 189.9 billion euros in the fourth quarter. However, this year, net purchases were only 53 billion euros in January and 59.9 billion euros in February, prompting calls to speed up the purchase pace. Additionally, on the 8th, the U.S. 10-year Treasury yield rose to 1.615%, marking the highest level of the year and increasing inflation concerns.

President Lagarde dismissed inflation concerns arising from government bond purchases. She explained that although there are short-term, temporary, and technical price increases due to the end of Germany's value-added tax reduction, rising energy prices, and supply chain constraints, demand and the labor market remain depressed due to COVID-19, which exerts a greater downward pressure on prices. Furthermore, she assessed that although international oil prices have recently pushed prices up, this will also be resolved by early next year, and the ECB's medium-term inflation forecast remains below its target.

This stance of the ECB contrasts with that of the U.S. Federal Reserve. Fed Chair Jerome Powell, attending the Wall Street Journal (WSJ) Jobs Summit Conference on the 4th, said, "There may be some upward pressure on prices," but reiterated the Fed's existing stance on countermeasures. Woo Hye-young, a researcher at Ebest Investment & Securities, evaluated, "Unlike the U.S. Fed, the ECB showed a willingness to respond quickly to the market's concerns about rising interest rates."

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