ECB meets as new coronavirus lockdowns complicate the region’s recovery

CNBC reports that with a policy change pretty much off the table this week, European Central Bank watchers will have to closely monitor finer details about its pandemic stimulus program as policymakers wait for more data before taking decisive action.

Recent economic figures do point to a stronger-than-expected economic recovery, and further coronavirus lockdowns across the euro zone won’t likely warrant further action by the central bank.

In the wake of the pandemic, the ECB launched its Pandemic Emergency Purchase Program, or PEPP, which buys bonds in the region to stimulate lending and fuel an economic recovery. It left that program unchanged at its meeting in March, with the target purchase amount still at 1.85 trillion euros ($2.21 trillion) — which is due to last until March 2022. 

However, it decided to accelerate the bond purchases on a monthly basis to alleviate some of the upward pressure of sovereign debt yields in the region — which had meant more expensive refinancing for euro zone countries or a tightening of financial conditions. 

But looking at the minutes of the meeting by the ECB’s Governing Council in March, it’s clear the opposition to rising yields was not as comprehensive as it first appeared.

More and more signs are emerging that the economy will pick up strongly in the second half of this year. The improved outlook has prompted some policymakers to step out already and hint at an exit to the PEPP.  Pierre Wunsch and Klaas Knot, the Belgian and Dutch central bank chiefs respectively, have started the discussion about a possible PEPP exit with the latter suggesting it could come as early as the third quarter of this year.