The current emergency pandemic asset purchase program, referred to as PEPP, has 1.85 trillion euros (48.4 trillion crowns) at its disposal. It is to be valid at least until March 2022.
The announced move comes after stable growth in government bond yields since the beginning of this year, which was more a reflection of a similar movement in US government bonds than a reflection of the outlook for better developments in the euro area economy. By accelerating the planned printing of money, the ECB wants to ensure that market interest rates remain very low. The aim is to allay fears that bond yield growth could undermine the economic recovery of 19 eurozone member states, Reuters reported.
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Economic growth in the euro area is currently weaker as the new wave of the pandemic and the slow introduction of vaccination require longer restrictions on movement, jeopardizing expectations of a rapid recovery in the spring. “Although the overall economic situation is expected to improve in 2021, uncertainty remains about the short-term economic outlook, especially in relation to the dynamics of the pandemic and the speed of vaccination campaigns,” said Christine Lagarde, President of the ECB.
However, the ECB’s new economic growth estimate envisages slightly higher growth this year, by four percent. In December, the ECB expected a 3.4 percent increase in gross domestic product. The bank raised its inflation estimate to 1.5 percent from one percent in December. However, Lagarde pointed out that higher inflation reflected temporary factors and rising energy prices.
Lagarde added that real gross domestic product in the eurozone is likely to fall again in the first quarter. She also stressed the inconsistency of recovery signals. However, the outlook for long-term inflation is unchanged, below the ECB’s 2% target set as a price stability ceiling.
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The Governing Council also stated that it would adjust bond purchases to market conditions and carry them out in such a way as to avoid tightening funding conditions. At the same time, it reiterated that it would not have to exhaust the PEPP program in full, if market conditions allow.
The ECB left the key interest rate unchanged at zero percent. The other two marginal rates are also unchanged.
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