European Central Bank holds interest rates steady


European Central Bank President Christine Lagarde attends a debate during a plenary session at the European Parliament on February 14, 2022 in Strasbourg, eastern France.

Frederick Florin | Afp | Getty Images

LONDON — The European Central Bank on Thursday announced it will wind down asset purchases faster than planned as it assesses the economic fallout from Russia’s invasion of Ukraine.

The ECB said in a statement that it will end its bond-buying program in the third quarter, if economic data allows it. The central bank added that it stands ready to revisit this decision if the outlook changes.

The surprise move comes amid growing concern that the euro zone economy could soon experience stagflation — the toxic mix of sluggish economic growth and high inflation. Consumer prices in the 19 countries that use the euro currency have climbed to record highs for four consecutive months, most recently hitting 5.8% in February.

“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,” the bank said, referring to its asset purchase program.

It said monthly net purchases under the program would amount to 40 billion euros ($44.5 billion) in April, 30 billion euros in May and 20 billion euros in June.

The central bank kept interest rates unchanged Thursday, leaving the benchmark refinancing rate at 0%, the rate on its marginal lending facility at 0.25% and the rate on its deposit facility at -0.5%.

Any adjustments in interest rates will take “some time” after asset purchases end, the bank said, adding this would be “gradual.”

The euro was trading around $1.1079 after the decision, little changed for the session. The common currency rose 1.6% on Wednesday to register its steepest daily jump in almost six years.

Ukraine war to have ‘a material impact’

The ECB’s meeting in Frankfurt, Germany, comes exactly two weeks after Russian President Vladimir Putin launched a full-scale invasion of Ukraine. The conflict has rattled the global economy and sent shockwaves through financial markets.

Energy and commodity prices have soared as the Kremlin steps up its onslaught on Ukraine, and as Western allies impose a barrage of punitive sanctions against Russia.

“The Russia-Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence,” ECB President Christine Lagarde said in a news conference.

“The extent of these effects will depend on how the conflict evolves, and on possible further measures.”

The ECB described Russia’s war with Ukraine as “a watershed for Europe,” while the Governing Council reaffirmed its pledge to “take whatever action is needed” to pursue price stability and to safeguard financial stability.

Amid surging energy costs, the ECB raised its inflation outlook for this year to 5.1%, up from 3.2%. This forecast was expected to cool to 2.1% in 2023, before dipping to 1.9% in 2024 — marginally below the central bank’s target of 2%.

‘Completely backwards’


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