Christine Lagarde, president of the European Central Bank. Picture: BLOOMBERG/CHRIS RATCLIFFE
Christine Lagarde, president of the European Central Bank. Picture: BLOOMBERG/CHRIS RATCLIFFE

Brussels — European Central Bank (ECB) president Christine Lagarde has said the institution isn’t discussing the phasing out of its emergency bond-buying even as it sees signs that the economy is starting to shake off the coronavirus pandemic.

While noting that medium-term risks for the economy are balanced, she pushed back against any suggestion the ECB is thinking about scaling back stimulus, describing the idea as “premature.”

“Incoming economic data, surveys and high-frequency indicators suggest that economic activity may have contracted again in the first quarter of 2021, but point to a resumption of growth in the second quarter,” Lagarde said on Thursday after the institution kept its stimulus programme in place. “Any phasing out was not discussed and is just premature.”

The central bank’s governing council left its €1.85-trillion bond-buying programme in place and confirmed that purchases will run at an elevated pace in the current quarter. Officials also held the deposit rate at -0.5% and pledged to continue long-term loans to banks to keep credit flowing to businesses and households.

“Overall, while the risks surrounding the eurozone growth outlook over the near term continue to be on the downside, medium-term risks remain more balanced,” Lagarde said.

The ECB significantly stepped up asset purchases last month to contain the fallout of a government bond sell-off that was driven a speedy US economic recovery from the coronavirus pandemic. Such market moves pose a risk to eurozone activity, as sovereign yields are used as a reference for the cost of bank loans to companies and households.

Officials have spent an average net €17bn per week under their pandemic programme since then, up from about €14bn per week in the first weeks of 2021. The aim is to keep borrowing costs for companies, households and governments across the euro area favourable during the pandemic. Net purchases are currently set to last until the end of March 2022.

The EU has significantly sped up its vaccination campaign in recent weeks, smoothing the path for an economic rebound that’s expected to gain strength in the second half of the year. For now, wide parts of the bloc are still facing severe restrictions to fight an elevated level of infections.

“Looking ahead, the progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in the course of 2021,” Lagarde said.

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