ECB Pandemic Purchases Stayed Muted Ahead of Pledge to Buy More

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Bond purchases under the European Central Bank’s pandemic program stayed muted through the middle of last week, before the Governing Council agreed to step up buying to counter rising bond yields.

The institution settled 14 billion euros ($17 billion) of net purchases in the week ended March 12, slightly above the amount recorded in the previous two weeks. The figures are damped by redemptions and don’t reflect orders made Thursday and Friday.

ECB Pandemic Purchases Stayed Muted Ahead of Pledge to Buy More

Policy makers decided last week to “significantly” increase the pace of buying in coming months amid concerns that higher yields will halt the euro-area economic recovery before it has even begun. Global sovereign borrowing costs are rising partly because of the U.S. economic rebound and its fiscal stimulus package, yet the euro zone remains mired in surging infections, slow vaccinations and extended lockdowns.

President Christine Lagarde said after last week’s decision though that the real pace of buying “is not going to be visible or strongly visible this Monday” because of high redemptions, and warned against questioning the ECB’s resolve.

The German government repaid 13 billion euros of two-year bonds last week, of which the ECB likely held some. Data on gross purchases and redemptions are due on Tuesday. More than 11 billion euros rolled off the central bank’s balance sheet over the previous two weeks.

The ECB has refrained from specifying how much it will spend weekly. The program has run at an average pace of 18 billion euros since it was created last March, occasionally exceeding 30 billion euros a week early in the crisis and slowing in the second half of 2020.

The planned acceleration this year is expected to be temporary, and policy makers have no intention of expanding the overall size of the 1.85 trillion-euro program, according to people familiar with the matter.

Governing Council member Martins Kazaks echoed that sentiment in an interview on Friday, saying that “if the economy performs better, it could be possible to provide less support.

He added that a “rise in yields will need to be accepted, but it should be gradual to avoid premature tightening.”

The ECB predicts an economic contraction of 0.4% this quarter before a rebound starts with growth of 1.3% in the second quarter, 1.6% in the third, and 1.3% in the final three months of the year.

©2021 Bloomberg L.P.

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