European Central Bank Ramps Up Bond-Purchase Program to Over $1.5 Trillion
The European Central Bank is scaling up its bond-purchase program to $1.52 trillion as it attempts to ease pressure n European governments, according to the Wall Street Journal.
Analysts were not expecting such a large move by the central bank, but believe it should help absorb most of the over $1 trillion in debt European governments are expected to issue as they attempt to keep economies afloat amid the pandemic. There was increasing concern that the economic contraction in Europe will be greater than in the US and the ECB is attempting to prove those speculations wrong.
The ECB seems to be following in the footsteps of the US Federal Reserve, who committed an unlimited amount of buybacks earlier this year. “The ECB is very well known to be behind the curve, only acting at five minutes to midnight, but now they are ahead of the curve,” said Alberto Gallo, a fund manager at Algebris Investments in London. On Thursday, the ECB announced that it would buy up to $1.52 trillion of European government debt through June 2021.
“The euro area economy is experiencing an unprecedented contraction,” ECB President Christine Lagarde said. Furthermore, the ECB stated that it would roll over maturing bonds purchased under this program, known as the Pandemic Emergency Purchase Program or PEPP through 2022. The benchmark interest rate for the bank stayed at -0.5 percent
Analysts still believe more stimulus is needed to absorb the massive amounts of debt European countries are issuing, especially in harder-hit regions like Italy. According to Frederik Ducrozet, an economist with Pictet Wealth Management in Geneva, the ECB will probably need to increase the bond-purchase program by another $700 billion. The ECB has been tasked with stabilizing the $15 trillion European economy.
The ECB continues to endorse its bond-buyback program stating that it helps ease European financial markets, supports bank lending and economic growth, and pushes inflation towards the bank's target rate of around 2 percent.