Schnabel Says ECB May Not Use Full Size of Emergency Program

(Bloomberg) -- The European Central Bank may not need to use the full size of its recently expanded pandemic purchase program, Executive Board member Isabel Schnabel said on Tuesday, adding that the pace of buying is likely to slow as the crisis abates.

Schnabel is the latest in a line of officials to suggest that the ECB won’t necessarily exhaust its 1.35 trillion-euro ($1.5 trillion) plan -- less than four weeks after nearly doubling its size. Executive Board member Yves Mersch, Slovakia’s Peter Kazimir and France’s Francois Villeroy de Galhau have all flagged fewer purchases as an option.

“One shouldn’t think of a linear pace that is going to be continued until the end of the program,” Schnabel told an online event organized by the Institute of International Finance. “There is also not necessarily a need to use the full envelope.”

The ECB has snapped up large amounts of debt immediately after devising the program, to contain widening yields in some member states including Italy during the lockdown. Yet the latest data suggest the worst may be over for the euro-area economy, with governments’ fiscal efforts also providing significant support.

At the same time, Schnabel argued that the region’s progress is very likely to be slow, cautioning against overestimating the relatively high readings of sentiment indicators in recent weeks. The crisis will probably have structural, scarring effects on the labor market, she added.

“The recovery won’t be as swift as many had hoped in the very beginning,” she said. “We’re seeing that the recovery is much more protracted.”

Speaking at a separate event on Tuesday, her Executive Board colleague Luis de Guindos said his greatest concern is the emergence of signs of a two-speed Europe due to countries’ unequal ability to use fiscal measures to counter the crisis.

He added that policy makers continue to be worried about weak growth in consumer prices and are “totally open to recalibrate the programs according to the evolution of inflation.” The outlook for interest rates is likely to be even more moderate than it was prior to the pandemic, he said.

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