February 26, 2022
By Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – European Central Bank policymakers remain open to accelerating a pullout from bond buying even as the war in Ukraine increases uncertainty and tussle Their biggest argument may be whether to set a firm end to the stimulus plan, the sources told Reuters.
With inflationary pressures rising faster than expected, the ECB certainly signaled an end to bond buying at its March 10 meeting. But the war in Ukraine has thrown those plans into disarray. prompting policymakers to reassess the outlook.
Six sources close to the discussion say a faster exit is still needed as inflation could be twice as high as the ECB’s 2% target this year, even though medium-term inflation is at risk. leap.
“Inflation is higher and broader. And it’s not just energy but food prices as well,” one of the unnamed sources told Reuters. “It would be inappropriate not to do this.”
Russia and Ukraine are both major grain exporters, and the conflict threatens to push food price inflation even higher.
Inflation projections have been notoriously inaccurate in recent quarters, so policymakers may place more weight on current results, including February figures, which will have effective next week, the sources added.
An ECB spokesman declined to comment. At a press conference on Friday, ECB Director Christine Lagarde said it was too early to speculate on a March decision as policymakers would decide based on the data available to them at that time. .
The problem is that, while temporary, high inflation can seep into the broader economy, lifting wages and prices, leading to high consumer price growth.
The ECB is expected to cut its bond purchases in the coming quarters but aims to keep the purchases public.
However, the end date is crucial as it has implications for any rate hike. Since the bank had signaled it would not raise rates before the bond purchases ended, the purchase of the indeterminate bonds also pushed back the timing of the rate hike.
A second source said: “One option is to signal our intent to end bond purchases by the third quarter but without making a firm commitment.
This could be a key point as policymakers in the moderate camp debate “flexibility and optionality”.
“I bet the closing date will be the biggest debate, I think it’s still an open matter,” a third source said.
Sources agree that the ECB should not make a commitment to raise interest rates.
They also said policymakers are likely to agree in March on loosening the link between bond purchases and any interest rate move. The bank’s current guidance is that bond purchases will end “just before” a rate hike.
The sources said the “short time” could create unwarranted expectations and tie the ECB’s hands so it could be scrapped.
(Reporting by Balazs Koranyi; Editing by Catherine Evans)
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