Europe’s central bank could print another $1 trillion and then some

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London (CNN Business) – Interest rates are primed to stay low in Europe for a very long time as central bankers add to the trillions they’ve already printed to stimulate the economy.
The European Central Bank signaled that it would keep interest rates low for longer on Thursday following a change in its approach to prices that will allow policymakers to keep pouring on stimulus until they’re confident that inflation will get to 2% and stay there.
“Confirmation that the ECB is leaving its policy settings unchanged and will persist with ultra-loose policy for longer than implied by previous statements will come as no surprise to investors,” said Andrew Kenningham, chief Europe economist at Capital Economics.
“However, today’s policy statement is arguably a little more dovish than might have been expected because the Bank has set the bar to raising interest rates a little higher than it may have done,” added Kenningham.
Remember: The ECB announced earlier this month that it had abandoned its old policy of targeting inflation of “below, but close to, 2%,” a goal that many investors and economists found vague and confusing.
Instead, the new-look ECB will pursue inflation of 2% in the medium term, and officials will have room to overshoot the target if needed.
The change comes as the central bank continues to gobble up bonds as part of its massive stimulus efforts.
How massive? Try $1,400,000,000,000. The ECB has purchased €1.2 trillion ($1.4 trillion) in bonds since March 2020 as part of its pandemic emergency response program.
But more is on the way. The central bank continues to snap up bonds at a rate of €80 billion ($94 billion) a month in the name of pandemic relief, with total purchases of €1.85 trillion ($2.2 trillion) authorized under the program.
That’s on top of the roughly €20 billion ($24 billion) a month in bond purchases the ECB is making under a separate stimulus program that was initiated in 2014 called the Asset Purchase Program.
Economists expect to learn more about the future of the bond-buying programs following ECB meetings in September or December.
Crystal ball: Barclays analysts said ahead of Thursday’s decision that they expect the central bank to end its pandemic bond-buying program in March 2022, assuming that the renewed surge in coronavirus cases doesn’t send countries back into highly restrictive lockdowns.
But that won’t mean the end of stimulus. When the emergency pandemic program ends, Barclays expects the ECB to “significantly” increase bond purchases under the Asset Purchase Program.
Barclays estimates the ECB will purchase a combined €700 billion ($825 billion) of bonds in 2022 under the two programs. That’s on top of hundreds of billions due for the remainder of this year.
“We expect policy rates to remain at current levels and ECB purchases to continue in some form (via net purchases and reinvestment in 2022, and reinvestment thereafter) beyond our forecast horizon and at least until the end of the 2023 ECB forecast horizon,” said the Barclays analysts.
That means the era of super-big stimulus is set to continue.
Source: CNN

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