European Central Bank president Christine Lagarde. Picture: REUTERS/OLIVIER MATTHYS
European Central Bank president Christine Lagarde. Picture: REUTERS/OLIVIER MATTHYS

The European Central Bank (ECB) renewed its pledge to maintain faster emergency bond-buying despite significant upgrades to its outlook for growth and inflation, as it attempts to sustain the eurozone after more than a year of debilitating economic crisis.

“Uncertainties remain as near-term economic output depends on the course of the pandemic, and how the economy responds after reopening,” ECB president Christine Lagarde said on  Thursday after officials pledged to keep asset purchases at a “significantly higher” pace than in the first months of 2021.

The decision underscores the ECB’s determination to allow no let-up in stimulus even as the region’s vaccination campaign and looser lockdown restrictions pave the way for a rebound. Policymakers accelerated the pace of their €1.85-trillion bond-buying programme three months ago to rein in rising borrowing costs, and several have argued since then that the economy isn’t ready for a withdrawal of support.

While Lagarde also unveiled forecasts that showed faster growth in inflation both in 2021 and 2022, she insisted that price pressures in the economy “remain subdued”.

The ECB’s continued emergency easing is likely to presage a similar move by the Federal Reserve next week not to start winding down stimulus, in a two-pronged policy push to ensure recoveries from the pandemic can be assured.

ECB purchases have been conducted at a pace of roughly €19bn a week since March, up from €14bn earlier in the year. Thursday’s decision suggests they are likely to continue at or close to that higher clip until the recovery firms. Most economists don’t expect a reduction until September.

The ECB’s decision was paired with a more optimistic outlook for growth in 2021 and 2022. Policymakers both in the eurozone and in the US argue that prices are being driven by temporary factors including higher fuel costs and manufacturing bottlenecks that will be resolved before too long.

In the eurozone, inflation climbed to 2% in May, technically above the ECB’s target. The institution’s last forecasts, however, showed it missing its goal both next year and in 2023.

Officials have repeatedly warned that it is too early for a debate around winding down pandemic measures. The ECB’s emergency programme is set to run through to March 2022, and most economists don’t expect it to be extended.

Alongside the decision on crisis purchases, officials left interest rates, long-term loans to banks, and an older bond-buying programme unchanged.

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