PARIS -A resurgence of COVID cases and a jump in inflation do not at this point warrant a change in ECB plans to wind down emergency bond purchases in March, ECB policymaker Francois Villeroy de Galhau said on Monday.
With the European Central Bank’s 1.85-trillion-euro Pandemic Emergency Purchase Programme (PEPP) due to expire in March, the ECB is due to decide in December on the its future and another one in place since 2015.
“I don’t think current developments change this assessment. From today’s perspective, we should end PEPP net purchases in March 2022,” Villeroy said in an interview with German newspaper Boersen Zeitung.
Since financial markets were largely anticipating its end in March, there was little reason to fear disruptive “cliff effects” when it does, he said.
While a jump in COVID cases in some euro zone countries is clouding the economic outlook, a surge in inflation this year has prompted warnings from ECB hawks to not keep monetary policy too loose too long.
Villeroy, who is also head of the French central bank, urged a “patient and vigilant” response at the ECB because the euro zone economy was not at risk of falling back into recession and because the inflation “hump” was temporary and caused by business bottlenecks.
“A premature tightening would be a mistake… But we also have to be vigilant on both sides… If inflationary forces were to become more persistent, we would not hesitate to act,” he added.
The fragile bond markets of Italy, Spain, Portugal and Greece could face a stability test as the PEPP‘s end looms as it offers the ECB more leeway to buy member states’ bonds than the 2015 Asset Purchase Programme (APP).
While all decisions did not need to be taken in December, Villeroy said increasing post-PEPP bond purchases under the APP was a possibility, although it was not needed at this point.
Nonetheless, there was a general consensus in the ECB‘s governing council on the direction of monetary policy, and what remained to be determined was the “timing and the pace along this path”, which depended on the economic and inflation outlook, Villeroy said.