ECB Decision April 2021

Christine Lagarde, President of the European Central Bank, addresses European legislators at a plenary session of the European Parliament in Brussels on 8 February 2021.

Olivier Matthys | AFP | Getty Images

LONDON – The European Central Bank on Thursday decided to keep its policy unchanged while market participants look for clues as to when its massive monetary stimulus may begin to wind down.

“The Governing Council decided to reaffirm its very accommodating monetary policy stance,” the ECB said in a statement on Thursday.

The President of the European Central Bank, Christine Lagarde, will answer questions after the most recent meeting at 14.30 local time.

The central bank said last month that it would increase government bond purchases – though still within the planned framework of 1.85 trillion euros ($ 2.2 trillion) until March 2022 – to counter rising eurozone bond yields. At the time, the ECB expressed concern that borrowing costs had risen sharply for eurozone governments before the economy fully recovered from the coronavirus shock.

As a result, data from Deutsche Bank showed that the ECB bought 74 billion euros in bonds in March, up from 53 billion euros and 60 billion euros in February and January.

“The Governing Council expects that purchases under PEPP will continue to be made at a significantly faster pace during the current quarter than in the first months of the year,” the ECB said on Thursday, suggesting that it will continue to buy more bonds in the coming months with the first few months of the year.

Eyes on June

Market participants eagerly anticipate the June meeting, the next in the ECB’s calendar, as the next important moment for monetary stimulus in the euro area.

Hawkish ECB members hope that as vaccination rates rise and economies slowly reopen, they can start negotiations on when to ease stimulus. However, this will depend on how the pandemic and the respective vaccination programs play out. Many European nations have been forced to return to severe coronavirus lockdowns after a third wave of infections during the Easter period.

The ECB signaled on Thursday that it all depends on how the financing conditions also develop.

“The envelope can be calibrated if required to maintain favorable financing conditions to address the negative pandemic shock against inflation,” the ECB said in a statement.

The ECB’s political mandate is to keep inflation close but below 2%. Current forecasts estimate that inflation will peak 2% in the last quarter of 2021, but to fall during 2022.

The market reaction was subdued after the announcement as it met analysts’ expectations of no further action.

In March, the ECB forecast a GDP (gross domestic product) of 2021 of 4% and 4.1% in 2022.