Published on Wednesday, June 16, 2021

Europe | The ECB continues with its gamble

June will be a key month for discovering how the two main central banks—the Federal Reserve (Fed) and the European Central Bank (ECB)—plan to begin to reverse the unprecedented expansionary policies launched at the start of the COVID-19 crisis.

Key points

  • Key points:
  • The ECB did not make any moves at its monetary policy meeting on Thursday: it will keep asset purchases at a faster pace than in the first few months of the year during the third quarter, in line with the second quarter, when they reached EUR 80 billion a month (vs. EUR 60 billion a month in the first quarter of 2021).
  • The ECB made a moderately positive assessment of the performance of the eurozone economy, despite recognizing the underlying uncertainties resulting from the pandemic. What is more important, it now considers euro area growth risks as balanced — the first time we have heard this since 2018.
  • President Lagarde maintained a cautious tone, pointing out that COVID-19 remains a source of downside risk and that the ECB remains prepared to adjust all of its instruments if necessary.
  • The inflation forecasts presented were for 1.9% in 2021 (from 1.5% in March), moderating to 1.5% (from 1.2%) in 2022 and 1.4% in 2023 — still some way off the ECB's target.
  • Attention will now focus on the Fed's monetary policy meeting on June 15 and 16, looking for more clues to its stance on tapering, which we expect—like the ECB's—will be very cautiously communicated and although it may give some sign that this could be under discussion, it will not announce tapering strategy until the end of the summer.

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