ECB to boost emergency bond purchases to stem rising yields

FRANKFURT, March 11 (Reuters) – The European Central Bank said on Thursday it would increase its bond purchases in the next quarter, in a likely attempt to keep borrowing costs low for a euro area economy still struggling with the COVID-19 pandemic.

The ECB has not changed its policy, having nearly a trillion euros of firepower to buy bonds and keep credit cheap for governments, households and indebted businesses in the 19 countries that share the ‘euro.

But he has sought to allay investor doubts about his resolve to stem any further rally in bond yields, which have risen in recent weeks largely due to external factors such as higher inflation expectations in the United States. , rising oil prices and supply disruptions linked to the pandemic. .

“Based on a joint assessment of financing conditions and inflation outlook, the Governing Council expects purchases under the PEPP in the next quarter to proceed at a significantly higher pace than in the first months of this year, ”the ECB said.

While no policy changes are expected for months and perhaps all year, the ECB is under pressure from the market to clarify how prepared it is to let bond yields rise before stepping in and what other measures of financing costs it monitors.

Policymakers have been divided on the merits of the increase in bond purchases, with some saying the recent rise in yields was not justified by a better economic outlook while others said it might even be. welcome.

Investors will await responses from ECB President Christine Lagarde’s press conference at 13:30 GMT, during which she will also unveil new economic projections.

These are expected to show slightly higher inflation this year, but weaker GDP growth, as economic activity in the eurozone remains constrained by the pandemic restrictions and the vaccine rollout continues slowly.

With Thursday’s decision, the ECB kept its pandemic emergency bond purchase quota (PEPP) at € 1.85 trillion and expects the purchases to proceed at least until ‘in March 2022.

The bank also left its deposit rate at minus 0.5% and left the door open for further cuts if necessary. It will also continue to provide banks with long-term loans at a rate of minus 1%. (Reporting by Francesco Canepa; Editing by Catherine Evans)

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