Christine Lagarde, president of the ECB, speaks at the Bank’s press conference in Frankfurt, Germany.
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With inflation rising and the Covid omicron variant expected to spread across the region, the European Central Bank has the inevitable task of presenting its policy outlook for 2022 on Thursday. .
The eurozone’s cost-of-living rise (19 countries share the euro) hit a record 4.9% in November, while omicron looks set to become the dominant coronavirus strain with some European economy has been locked due to delta variation.
Dirk Schumacher said: “The sharp increase in infections and inflation as well as the emergence of a new variant of Omicron have complicated the picture so much that the Board may need more time to decide on it all. details governing its unconventional policy instrument. , an ECB follower with Natixis, in a recent research note.
The organization led by Christine Lagarde has developed a new bond-buying program in the wake of the coronavirus hit in March 2020 to support the euro area. PEPP will end in March 2022 with a total potential value of 1.85 trillion euros ($2.19 trillion).
The ECB has also maintained its asset purchase program, known as APP, amid the pandemic that has seen a monthly pace of up to 20 billion euros. The central bank has been using this program in conjunction with PEPP to sustain the 19-member economy.
Schumacher added that Natixis still expects an announcement that the PEPP program will end in March, and “we expect a clear signal that the APP will be used in a more flexible way.”
The big focus of this week’s meeting will be on new hires’ projections for inflation and growth. They show whether the 2% inflation target will be met in the medium term, which is ultimately the central mandate of the ECB.
“I see an inflation profile that looks like a hump. So obviously it’s been up over the last three quarters and we know it hurts,” Lagarde said at a Reuters conference on December 3. How painful.”
“And a hump is finally dropping and this is what we’re predicting for 2022,” she added.
FLEXIBLE APPLICATION
Another key question is how the ECB will wrap up the PEPP program at the end of March into a more flexible and potentially larger APP without causing major market volatility and keeping financial conditions at bay. “beneficial” level. The ECB is expected to emphasize the need for flexibility.
“Flexibility, in our view, means different purchases depending on the inflation outlook and financial conditions, i.e. maintaining the principle of ‘favorable financial conditions’ characteristic of PEPP. “, Spyros Andreopoulos, senior European economist at BNP Paribas, said in a note.
“This view has been supported by recent rhetoric by the ECB that emphasizes the need to maintain flexibility, as opposed to committing in advance to a fixed volume of purchases.”
