ECB to Speed Up Bond Purchases to Prop Up Sluggish Economy

FRANKFURT – The European Central Bank (ECB) has said it will step up its bond purchases in the eurozone after a recent rise in borrowing costs, a surprising move that differs from that of the U.S. Federal Reserve, which is trying to shore up the region’s faltering economy.

In a statement after its meeting on Thursday, the ECB said it plans to buy 1.85 trillion euros worth of bonds, the equivalent of $2.2 trillion, over the next three months, at a much faster pace than earlier in the year. It also left its key interest rates unchanged.

The sharp divergence in the short-term economic outlook between the US and the eurozone has put the ECB in a more difficult position than the Fed, which has recently signalled that it will not attempt to slow the rise in government bond yields. The slow spread of Covid 19 vaccines across the continent has led to a return to the social constraints that slowed Europe’s recovery from last year’s historic recession, even as a $1.9 trillion stimulus package is expected to spur economic growth in the United States.

Meanwhile, improving global investor sentiment is making borrowing more expensive around the world. This raises concerns among ECB officials that excessive increases in household and business borrowing costs could jeopardize the region’s recovery before it has even started.

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European bond yields fell after Thursday’s announcement. The yield on Italian 10-year bonds fell to 0.577% from 0.681% on Wednesday, its lowest level in three weeks. The yield on German equivalent bonds fell to minus 0.362%. Sales are moving back in the direction of prices.

Federal Reserve policymakers will meet on the 16th and 17th. March to think about his next move. President of the Federal Reserve

Jerome Powell.

Last week, there were no indications that the central bank would try to halt the recent rise in government bond yields, which has pushed them higher.

According to the Organisation for Economic Co-operation and Development, the eurozone economy is expected to grow by about 4% this year, compared with 6.5% in the US. The difference reflects a greater fiscal stimulus in the United States and a faster rollout of the vaccine, the OECD said this week.

While a strong US recovery could support European exports, it could also lead to higher borrowing costs in the Eurozone and elsewhere as investors shift their money to US markets.

In recent months, the ECB has expanded its so-called emergency bond-buying program twice, most recently in December to 1.85 trillion euros, and has about 1 trillion euros of unused purchasing power. The central bank said Thursday that it would continue its bond purchases until at least March 2022 and was prepared to change the size of the emergency program if necessary.

Email Tom Fairless at [email protected]

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