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FRANKFURT, Germany (AP) – The European Central Bank on Thursday decided not to abruptly withdraw support for the economy in the event of a pandemic as the new omicron variant of COVID-19 raises uncertainty about the recovery, despite inflation records and the United States accelerating their stimulus measures out.
The cautious approach comes as the 19 European Union member countries using the euro are already seeing the economic rebound slow due to an increase in infections from the delta variant and shortages of parts and raw materials. This has held back an economy that depends on trade and supply chains.
The bank has confirmed that it will phase out its 1.85 trillion euros ($ 2.1 trillion) pandemic bond purchase stimulus on schedule next year, but will maintain some of the effect by moving part of the purchases to another support program.
Bond purchases lower long-term borrowing rates and are aimed at keeping financing affordable so businesses can weather the pandemic downturn.
While many questions remain unanswered about the rapidly spreading omicron variant, including whether it can escape vaccines and the likelihood of serious illness, that hasn’t stopped the Bank of England from raising rates of interest in UK. Despite the growing number of COVID-19 infections in the UK, it has become the first central bank among the world’s major economies to raise rates since the start of the pandemic.
Analysts don’t expect the European Central Bank’s interest rate hike for the first time from its all-time lows before 2023.
Unlike the ECB, the US Federal Reserve decided to accelerate its exit from support for the pandemic crisis, saying it would cut back on its monthly bond purchases to double the pace it had previously set and put it at it. probably end in March. This puts the Fed on track to start raising rates as early as the first half of next year.
Inflation in the eurozone is well above the European bank’s 2% target, but banking officials and many economists say the rise in consumer prices is temporary and will end. will likely ease next year. The most recent projections by the bank’s staff project inflation of just 1.5% in 2023. New forecasts, including the first inflation outlook for 2024, are expected at Thursday’s meeting.
It’s a different situation than the Fed is facing, where US stimulus and infrastructure spending, along with a strong rebound in growth, have resulted in stronger inflationary pressures.
The eurozone economy grew 2.2% in the third quarter from the previous quarter, but economists say the pace has already slowed significantly due to parts shortages and higher virus cases that are discouraging retailers. face to face indoor activities and add loads on travel.
The European Central Bank has said it will end its pandemic support program in March as planned, but add a stimulus to another program that bought € 20 billion in bonds per month. These monthly purchases will increase to 40 billion euros in the second quarter and 30 billion euros in the third quarter. The program would then amount to 20 billion but would then operate “as long as necessary”, an indefinite commitment.
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