After inflation and rising interest rates on sovereign debt, the European Central Bank (ECB) is expected to determine the pace of purchases of Eurozone debt in the third quarter on Thursday.
In the second quarter, the European Central Bank purchased bonds at a significantly higher rate than the first few months of this year to avoid a rise in the euro zone due to rising US interest rates.
Although the inflation rate rose to 2% in May, which is a goal defended by the European Central Bank, most analysts ruled out the possibility of major changes in monetary policy because the agency intends to guarantee favorable financing conditions.
The European Commission will soon begin issuing bonds to provide funds for the Recovery Fund. The funds may begin to arrive in July, which will reduce the burden on the European Central Bank, but the pace of bond purchases is unlikely to slow down significantly. The economy improves because the risks are still high.
In May, the European Central Bank purchased 80.7 billion euros of emergency debt to deal with the impact of the pandemic. So far, it has purchased 1.1 billion euros worth of assets as part of a crisis containment plan launched more than a year ago.
The board of directors decided to purchase 1.85 billion euros worth of debt by the end of March 2022.
Konstantin Veit, Pimco’s portfolio manager, said that the European Central Bank is currently purchasing bonds worth 80 billion euros a month in the pandemic emergency plan, and purchasing assets worth 20 billion euros a month through other regular plans.
“We hope that this situation will remain largely unchanged in the next quarter,” Veit said.
It is expected that the European Central Bank will also release new macroeconomic forecasts and may revise the growth data for 2021 and 2022. As for inflation, the forecast may be raised this year, but it will remain unchanged for the next few years.
“Driven by the 13.1% annual increase in energy prices, provisional estimates indicate that Eurozone prices rose by 2% in May, reaching the ECB’s target for the first time since 2018,” he emphasized and added 3 in the forecast. Released in December, inflation should only reach such a level in the fourth quarter of this year.
In this analyst’s view, the President of the European Central Bank, Christine Lagarde, should “reemphasize the temporary nature of the recent rise” because “this is mainly driven by the recovery of energy prices”.
For his part, Gilles Möec, chief economist at AXA Investment Managers, believes that the European Central Bank “should be particularly cautious” because investors will pay attention to any wording changes in the meeting decisions.
He defended: “At least until the latest events related to the British pandemic are analyzed, optimism about the reopening of the European economy should be eased.”
Monex Europe analyst Olivia Alvarez (Olivia Álvarez) believes that the European Central Bank should emphasize that “despite a more favorable economic outlook, it should still emphasize its monetary easing policy, while also emphasizing that there are still potential downside risks.”