Governing Council Meeting, European Central Bank 11/3/2021

ECB to increase its asset purchases

On 11th March, the European Central Bank announced that it would
continue with the €1,850b. Pandemic Emergency Purchase Programme
(PEPP) until at least the end of March 2022, or until it judges that the
coronavirus crisis phase is over. No new monetary initiatives were
announced, but the Governing Council announced that it would step up the
purchase of assets. Although it has committed to this huge amount, having
raised the total it planned to purchase from €1,350b. to €1,850b in
December, it has not actually been buying that many assets recently. It
intends, however to redress this in the coming months and n run-off of the
purchases will be considered until at least the start of 2024.
In the press conference following the meeting, ECB President Christine
Lagarde acknowledged - for the first time - that there could be an “increase
in inflation over the medium-term." Inflation was steady at 0.9% in the
year to February, but economic activity across much of the Eurozone is
still very subdued due to the ravages of the virus. However, with vaccines
likely to bring the worst of the pandemic under control later in the spring
or in the summer, inflation is likely soon to pick up, exceeding the ECB’s
target of 2% or just below. Mme Lagarde’s statement made no mention of
the high level of broad money growth (M3), which rose by 10.7% in the
three months to January (*), which suggests that this tentative admission of
the prospect of inflation does not truly recognise the likely scale of the
problem in the coming months.

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Note (*): M3 grew 9.7% in the three months to February 2021.