ECB speeds up exit from bond purchases amid raging inflation

FRANKFURT — The European Central Bank will accelerate its exit from bond purchases as the economic after-shocks of the Russian attack on Ukraine further push up inflation, it announced Thursday.

Monthly net bond buys under the central bank’s pre-pandemic program, or APP, “will amount to €40 billion in April, €30 billion in May and €20 billion in June,” it said in a statement.

Much as expected, the ECB retained its flexibility in the fog of war, noting that any asset purchases thereafter would depend on the economic data.

“If the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases, the Governing Council will conclude net purchases under the APP in the third quarter,” it said.

The ECB also adjusted its so-called forward guidance on interest rates to indicate that the first interest rate hike won’t necessarily immediately follow the end of asset purchases, as it had previously indicated.

Rather than affirming that the Governing Council expects net purchases to end “shortly before” it starts raising benchmark interest rates, the ECB said Thursday a shift “will take place some time after” the end of asset purchases, “and will be gradual.”

The euro rose by 0.7 cents to 1.11 against the dollar on the announcement.

At its February meeting, the ECB had all but pre-announced a faster exit from asset purchases after January’s inflation data soared, defying expectations of a decline.  Since then, February inflation rose further to 5.8 percent, while a surge in energy and food prices are set to make matters even worse in the coming months.

ECB President Christine Lagarde is set to explain that Governing Council’s decision at a press conference starting 14:30 CET. She’ll also share the ECB’s staff projections for growth and inflation, which will offer a first official glimpse of the central bank’s official assessment of how the war will impact the eurozone’s economy.

More generally, the ECB said that “the Russian invasion of Ukraine is a watershed for Europe” and stressed that it “will take whatever action is needed to fulfil the ECB’s mandate to pursue price stability and to safeguard financial stability.”