Lagarde Says "Women Do Not Taper"...Calms Controversy Over Slowing Asset Purchases

Easing Asset Purchase Pace Policy Calms Surprised Market
"Discussions and Decisions on PEPP to Be Made at December Meeting"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Christine Lagarde, President of the European Central Bank (ECB), made a statement that "The lady isn't tapering," which became a hot topic in the international financial markets. This remark is interpreted as an attempt to calm concerns about the start of tapering (reduction of asset purchases) after the ECB decided to keep interest rates unchanged while slowing the pace of bond purchases.

Although there are concerns about delays in economic normalization due to the spread of the COVID-19 Delta variant, the ECB is known to have adjusted the pace of asset purchases as a precaution against inflation, given the strong current economic recovery.

At a press conference following the ECB monetary policy meeting on the 9th (local time), when asked whether the decision to slow the pace of asset purchases should be seen as tapering, President Lagarde emphasized that "The lady isn't tapering," indicating that there will be no tapering. Lagarde's remark parodies the 1980 statement by former UK Prime Minister Margaret Thatcher, who famously said "The lady is not for turning" in response to criticism of her economic policies.

Earlier that day, the ECB decided at the monetary policy meeting to maintain the benchmark interest rate at the current 0%, and keep the deposit rate and marginal lending rate at -0.50% and 0.25%, respectively. However, it announced that the pace of bond purchases under the Pandemic Emergency Purchase Programme (PEPP), introduced to respond to the economic impact of COVID-19, would be reduced compared to the past two quarters.

In its statement, the ECB explained, "The volume of bond purchases under the PEPP will be maintained at at least 1.85 trillion euros until the end of March next year," and "The pace of bond purchases will be reduced based on a joint assessment of financial conditions and inflation outlook." Previously, on March 11, the ECB had decided to significantly increase the pace of COVID-19 response bond purchases for several months earlier this year, but after six months, it has decided to slow the pace again.

According to foreign media such as CNBC and MarketWatch, President Lagarde's use of this phrase regarding the decision to slow the pace of asset purchases is seen as a move to prevent the market from interpreting the ECB's decision as tapering. Lagarde emphasized that this decision is a "recalibration of the Pandemic Emergency Purchase Programme (PEPP), not tapering," highlighting that stimulus measures are ongoing.

She added, "The end of PEPP and decisions on interest rate hikes are still far off," and "Detailed discussions or decisions on PEPP will continue at the December meeting." This statement aims to block suspicions about the start of tapering as much as possible while postponing detailed decisions or judgment to December. President Lagarde also tried to dispel concerns about tapering by stating, "The rise in inflation is temporary and the upward pressure is slow. Expected inflation still remains below the target of 2%."

However, she showed some caution regarding inflation forecasts. President Lagarde said, "The inflation forecast for 2021 is significantly high, and it will be significantly high in 2022 and 2023 as well," but added, "Overall, inflation figures are improving considerably when viewed over a broader timeframe." At the monetary policy meeting that day, the ECB raised its inflation forecast for this year from the previous 1.9% to 2.2%.

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