LONDON, (Reuters) – The European Central Bank maintained policy on Thursday. This signalled a gradual reduction in stimulus for the coming months. However, inflation is still high.

Although the ECB had been cautiously moving for several months in order to end support, it has not yet established a strict schedule. Thursday’s decision followed a similar trend, confirming that the direction of travel, but with very few details beyond the next months.

According to the ECB, it will reduce bond purchases under the Asset Purchase Programme by 30 billion euros and 20 billion euro in June. This is in addition to the 40 billion euro current pace. Buys are expected to end sometime in the third quarter.

Reaction of the market:

After the policy statement was issued, euro zone bond yields dropped. German 2-year bond yields were down by 5 basis points.

Euro fell 0.2% to negative territory

The expectations for an ECB rate increase by the end the year were also reduced in the money markets.

Below is an overview of the analyst comments.

CARSTEN BRZESKI – GLOBAL HEEAD OF MACROAT ING

There was no indication of the rates’ future trajectory. Interest rates are unchanged. The ECB stated that the Pandemic Emergency Purchase Programme reinvestments could be used in market fragmentation to address the current debate about how the ECB can deal with wider bonds spreads.

The ECB and Europe are different. Instead of panic reactions, the ECB is continuing its slow normalization which we believe will bring an end net asset purchases in the summer and an end of negative interest rate before the end.

STEVE RYDER SENIOR PORTFOLIO MANGER, AVIVA Investors GLOBAL SUPOVEREIGN Bond FUND:

The upside inflation surprises this year have continued to accelerate ECB regularisation at every meeting. However, despite March’s record-breaking inflation print, the ECB has today retained their current stance. The downside risks to growth are growing and the uncertainty surrounding Ukraine and its impact on inflation will continue weighing on confidence. We see this market as more balanced, with markets pricing in a substantial degree of rate normalization.

ANNA STUPNYTSKA GLOBAL MACRO ECONOMIST, FIDELITY INTERNATIONAL:

Recession in Europe is our baseline case. However, its severity and length are directly affected by the impact of additional sanctions against Russia. A full energy embargo looks more and more probable, which makes it the most likely scenario for a recession.

As the impact of the economic shock on the economy becomes clearer over the coming weeks, we believe that the ECB will shift its focus away from high inflation to limiting market and economic distress. This is as a result of the ongoing invasion by Ukraine and the ripple effects it has had on the entire system. Contrary to market pricing, we do not expect the ECB to hike rates until Q4 this year or early 2023.”

STUART COLE, CHIEF MACRO STRATEGIST, EQUITI CAPITAL, LONDON

We have confirmation that the asset acquisition programme will be ending in Q3. It is possible that the interest rate will rise before year’s end. Therefore, market expectations regarding a December increase are likely to be firm.

They are open to providing additional support as needed.

LONDON, KENNETH BROX, FX STATEGIST, SOCIETTE GENERALE:

“The euro/dollar pullback suggests that some people were better positioned to receive more hawkish comments from the European Central Bank.”