The European Central Bank(ECB) kept interest rates unchanged but signaled faster money-printing today to keep a lid on Eurozone borrowing costs but stopped short of adding firepower to its already aggressive pandemic-fighting package.
Concerned that a rise in bond yields could derail a recovery across the 19 countries that share the euro, the ECB said it would use its 1.85 trillion Pandemic Emergency Purchase Programme more generously over the coming months to stop any unwarranted rise in debt financing costs.
“The Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year,” the ECB said in a statement after its regular policy meeting.
The widely expected move comes after a steady rise in yields since the start of the year that has mostly mirrored a similar move in US Treasuries rather than reflecting improved economic prospects across the Eurozone.
Growth is actually weaker than forecast as a new wave of the coronavirus pandemic and a painfully slow vaccine rollout are requiring longer lockdowns, challenging expectations for a rapid rebound in the spring.
The bloc’s fiscal support is also modest compared to the $1.9 trillion relief package approved by the United States Congress.
Naeem Aslam chief market analyst at Avatrade said:
“The ECB left the powder dry in their meeting today. However, the overall narrative is taken dovish by market players and this has pushed the euro lower against the dollar”.
The euro strengthened today against the US dollar to $1.196, up 0.3 per cent on the day.
Neil Birrell, Premier Miton chief investment officer said of the move:
“The ECB left rates unchanged as expected, confirmed the size of the asset purchasing programme and says it will speed up some elements of it.
“Europe is not bouncing back as fast as other regions and the ECB remains in place to provide the support that is required. At first glance this looks more dovish than markets were expecting, which reflects the backdrop.”