All ECB Bond Purchases Could End Next Fall, Holzmann Says

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The European Central Bank could stop buying bonds as early as next September if inflation looks to have sustainably returned to the official target, Governing Council member Robert Holzmann said.

Introduced in 2015, the bank’s asset purchase program, or APP, was designed to get consumer-price growth back to 2%, according to Holzmann, who heads Austria’s central bank and is considered one of the euro zone’s most hawkish policy makers.

“So the elimination of the condition and therefore the end of the program could -- depending on the inflation development -- happen in September or at the end of the year,” he told an event Wednesday in London. 

Italian bonds were little changed at the open on Thursday after Holzmann spoke. His timetable would suggest stimulus withdrawal that is far sooner than anticipated by ECB observers, with economists surveyed by Bloomberg foreseeing the bond-buying tool staying in operation at least through the end of 2023. 

ECB officials are five weeks away from a meeting to lay out their post-pandemic policy path. While President Christine Lagarde has signaled pandemic asset purchases will end as planned in March, there’s no consensus on what will happen to the bank’s conventional bond-buying plan -- currently running at 20 billion euros ($23.1 billion) a month.

Inflation in the euro area -- subdued in the years following the global financial crisis -- is running at twice the official medium-term goal. 

Inflation Bet

Holzmann, who expects price growth to stay above 2% throughout 2022, said he opposes any changes to the conventional bond-buying plan. He’s also against another round of targeted longer-term refinancing operations aimed at enticing banks to provide loans to the real economy.

“The data analyses we have show that additional lending effects were very low,” he said. “I see no reason for this to keep on running -- the economic effect is low.”

The focus now is on the path for inflation. Goldman Sachs predicts it will settle half a percentage point above pre-pandemic levels. That means the natural rate of interest -- at which economic growth is neither stimulated nor constricted -- could get a similar boost relative to the aftermath of the 2008 crash.

“Inflation being below 2% at the end of 2022 -- I wouldn’t bet a lot of money on that happening,” Holzmann said. Models suggest the rate will dip below that level in 2023 or 2024, however, he added.

Inflation is likely to be 2.2% in 2022, according to new European Commission forecasts set to be published later Thursday. The ECB will release its own projections at its meeting next month.

While central banks from countries including Poland and the Czech Republic have surprised with steeper-than-expected rate increases recently, the ECB has insisted borrowing costs won’t rise any time soon. Pushing back against investor bets, President Christine Lagarde has said a hike next year is “off the chart.” 

Money markets are betting the ECB will hike its deposit rate by 10 basis points to minus 0.4% in September 2022. At the end of October, it was bracing for 20 basis points of tightening in November 2022. 

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