Christine Lagarde sported a yellow and blue pin and expressed her “full support for the Ukrainian people”. But the President of the European Central Bank decided, Thursday, March 10, to continue the “normalization” monetary policy as if the Russian invasion had not taken place.
She announced that the ECB would gradually put an end to its asset purchase policy on the financial markets: from approximately 60 billion euros per month currently, the Frankfurt institution will increase to 40 billion in April, 30 billion in May and 20 billion in June. The goal is to end it completely in the third quarter. A hike in its key rate could happen “some time later” (” a bit later “).
If the ECB manages to stop its asset purchases, it would be the end of a long interventionist period: it started buying government debt in 2014 and has not stopped since (except for a period eleven months in 2019). As for the interest rate, it has been negative since 2014, and at -0.5% since September 2019.
The ECB was caught between two opposite effects. On the one hand, the Russian invasion, by causing a vast increase in the price of raw materials, will put a brake on growth. On the other, it will increase inflation. Faced with the two dangers, the Governing Council, made up of the six members of the Executive Council and the nineteen governors of the central banks of the countries of the euro zone, was divided. “The discussions were very intense”acknowledges M.me The guard. But in the end, concerns about inflation prevailed.
Growth of 3.7% expected in 2022
Mme Lagarde explains this decision on the basis of the new official forecasts of the ECB, which forecasts 3.7% growth in 2022, which remains extremely solid. Of course, the Russian invasion will have a negative economic impact, but at the same time, the pandemic seems almost ancient history and health restrictions are gradually disappearing. In addition, state support has been strong over the past two years, and many households have accumulated savings.
Conversely, the signals around inflation are alarming, believes the ECB. The price index in the euro zone was already up by 5.8% in February, it will continue to rise sharply in the coming months. In total, it should reach an average of 5.1% over the year as a whole. This is well above the mandate of the central bank, which plans to maintain long-term inflation at 2%.
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