ECB says it will keep to faster pace of bond-buying to help the economy bounce back from COVID

European Central Bank President Christine Lagarde has said she expects sharp rises in inflation to be temporary. Olivier Matthys/Pool via Reuters
  • The ECB said it would keep snapping up bonds at the current rate and left interest rates on hold.
  • The central bank increased the pace of its purchases in March in response to rising bond yields.
  • Europe’s economy is bouncing back as coronavirus vaccinations pick up and restrictions are eased.
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The European Central Bank kept interest rates at record lows on Thursday and said it would keep purchasing bonds at a quicker pace to hold down borrowing costs across the economy.

ECB President Christine Lagarde said that the economy was rebounding as countries reopened from lockdowns. But she said: “Uncertainties remain, the near-term economic outlook continues to depend on the course of the pandemic and on how the economy responds after reopening.”

The euro slipped slightly after the decision and was down 0.05% against the dollar at $1.217.

The central bank for the eurozone kept its main deposit rate unchanged at -0.5% and held its bond-buying package steady at 1.85 trillion euros ($2.3 trillion).

It also said it expects to keep buying bonds at a significantly higher pace than during the first months of the year.

The ECB increased the pace of its purchases in March in response to rising bond yields, which it said could have pushed up borrowing costs in the single-currency bloc. The central bank’s purchases help keep bond prices high and so yields – or market interest rates – low.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: “It’s difficult to translate this into an exact pace of [purchases], but given that the ECB has recently lifted the pace of [buying] to about 20 billion euros per week, our interpretation is that it will seek to maintain this pace through Q3.

“As always, however, the definition of ‘significantly higher pace than during the first months of the year’ isn’t set in stone.”

Xian Chan, chief investment officer at HSBC’s wealth management arm, said rising inflation meant there had been questions about whether the ECB would slow down its bond buying.

“However, higher bond yields and a strong euro have meant that financial conditions have tightened over the past few months, and this likely encouraged the ECB to maintain the high pace of stimulus to keep financial conditions loose,” he said.

Like other central banks around the world, the ECB has been keeping a close eye on inflation, which has risen in recent months.

In updated forecasts, the ECB said it expects inflation to spike to 1.9% in 2021 but fall to 1.4% by 2023, well below the bank’s 2% target.

The central bank increased its growth forecasts as a result of the rollout of vaccines and countries reopening. It now expects eurozone gross domestic product to grow 4.6% in 2021 compared to an earlier estimate of 4%.