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ECB governors mull delaying call on future bond buys as outlook murky -Breaking


© Reuters. FILE PHOTO – The European Central Bank logo, Frankfurt, Germany. January 23, 2020. REUTERS/Ralph Orlowski

Francesco Canepa, Balazs Coranyi

FRANKFURT, (Reuters) – A rising number of European Central Bank Governors may delay part of a decision regarding the ECB’s stimulus plans because of a new coronavirus variant as well mounting price pressures. Sources said that the outlook is clouded by a growing list of prices and a new coronavirus variant.

On Dec. 16, the ECB’s Governing Council meets to determine whether it will end March’s emergency bond purchases and what debt they should buy in order to stabilize inflation at 2%.

On Wednesday, policymakers gathered for a seminar. Three close sources to or from the ECB policy-making Governing council stated that agreement was reached on the end of the Pandemic Emergency Purchase Programme (March), as President Christine Lagarde had repeatedly indicated.

Some governors, however, would prefer to leave a decision regarding bond purchases following March to the ECB’s next policy meeting on February 3, where more information will be available about the Omicron variant’s impact and the outlook on inflation.

The ECB Executive Board was likely to resist them. It has waited for a December decision, and is wary of disturbing bond investors who are looking for reassurance.

The market pressures led to another option: to make plans for December but only the first few months following the end of PEPP, so that policymakers can review their decisions in 2022.

The spokesperson of the ECB refused to comment.

Over the last week, the Omicron strain’s emergence has caused policymakers to lose faith in their future outlook. It also rattled financial markets.

Some people felt it was impossible to predict whether Omicron would disrupt economic activity. It would be a dual-edged sword that could depress the demand, but also reduce supply.

The inflation rate reached an all-time high of 4.9% on Tuesday. It showed signs that it was increasing to more of the economy. These indications suggest that wages will continue rising and prices may stay higher for a longer time.

Omicron, which has emerged from the Bank of England’s dilemma of raising interest rates after their lows in the pandemic period, is also being added to it.

Investors have also reduced their expectations of a 15-basis-point rate rise to about 65% by lowering their stakes, which was 75% prior to the Omicron news.

Jerome Powell, Federal Reserve chairman and policymaker was also seen to doubt the validity of his assertion that U.S. inflation surges are temporary. He indicated on Tuesday that Fed support might be withdrawn faster than anticipated.


The ECB’s position on inflation has remained largely unchanged. It is mainly caused by short-term factors, such as increased energy prices, supply shortages, and the base effects of the last year’s slump.

The sources stated that the risk of inflation stabilizing at or exceeding target by 2023 is increasing for policymakers.

Despite the fact that policymakers are yet to reach an agreement about how to end the PEPP, the discussion is likely to begin at Wednesday’s seminar.

Some policy hawks are against adding to the six-year-old Asset Purchase Programme of the ECB, currently running at 20 Billion euros per month. According to them, any signs of market stress can be controlled by flexibly deploying the proceeds from matured PEPP bonds.

However, sources say that this option won’t find much support.

Other groups want at most to retain the remaining PEPP firepower (which could amount to 100-200 billion euros) to be deployed after March.

Many others still support the idea of creating an “envelope”, which is a bank of cash that can then be used for bonds.

The remaining options are to add a certain amount of money each month to the APP or launch a completely new program.