The monetary policy meeting of the European Central Bank (ECB) that takes place this Thursday is one of the most important in recent months for the institution.
The time is approaching to announce the start of the withdrawal of debt purchases that were activated with the arrival of the pandemic, and the market consensus that Bloomberg gathers expects that, from September onwards, the pace of bond purchases by of the institution is gradually reduced.
The Emergency Debt Purchase Program (PEPP) is the one that is expected to begin to be reduced. The ECB buys 80,000 million euros per month with this tool and by October the market consensus expects it to be cut to 70,000 million.
Experts believe that the figures will be less and less as the months go by, until March 2022, when they expect the institution to inject 52,000 million euros, the month in which the program is scheduled to end. “We continue to expect a new rate of PEPP purchases of 60,000 million euros per month, in line with the rate of purchases at the beginning of the year,” they point out from Pimco.
All these issues are on the agenda for this Thursday, a meeting that the markets will follow very closely and that could have consequences. And not only are the measures that the ECB has decided to adopt important: it will also be key how they communicate it, trying to prevent the beginning of the end of the stimulus due to the pandemic from punishing the stock market and fixed income with too much virulence.
It must be remembered that tapering is the beginning of the withdrawal of stimuli, but it is assumed that at some point in the next few years the ECB will begin to reduce its balance of assets, which has exceeded 8 trillion , something that is likely to have a strong impact on the market.
This Thursday’s meeting is especially important because the ECB will publish the update of its macroeconomic forecast table. It is usually in these meetings, when the members of the Governing Council have their recently updated estimates available, when they decide to make changes to their policies.
On this occasion, the market consensus believes that the ECB will be forced to increase its inflation estimates for 2021 and 2022, and they also expect it to increase its GDP growth forecast for this year.
“With inflation in the month of August reaching levels of 3%, and with the expectation that both growth and inflation expectations for the coming years will be revised upwards, it seems that the members of the ECB with a more dovish profile will not have many arguments to delay the reduction of PEPP purchases ” , they explain from A&G Private Banking.