NewsAdequate prudence of the ECB

Adequate prudence of the ECB

Like the Fed last Tuesday, the ECB has also been clear about its roadmap for 2022. However, this is where the similarities between both entities end.

As the US bank accelerates the withdrawal of stimuli while announcing three rate hikes for 2022 (one more than expected by the market), the ECB is much more cautious. As planned, the European body will finalize the purchase program against the pandemic(the so-called PEPP) in March. Thereafter, debt purchases will fall by half from the current level. Specifically, it will go from a volume of 80,000 million to one of 40,000 million, although the decrease will be progressive.

Already in October, the ECB will once again reduce purchases, which will remain at 20,000 million per month, a rhythm that it will maintain for as long as it is necessary to reinforce the economic recovery. It is clear that the speed in the withdrawal of stimuli from the ECB is much slower than in the case of the Fed. This is something logical, since the economic scenario is completely different in both territories. The US presents a robust economic recovery and inflation that has shot up to 6.8%. The euro area, for its part, also suffered from the rise in prices (4.9%),

The lack of vigor of the recovery in the euro area leads the central bank to be cautious with the withdrawal of stimuli

This is attested by the latest indicators of economic sentiment and by the president of the ECB, Christine Lagarde, when she assures that “the recovery is slowing down” due to the impact of the omicron variant. Faced with this risk, the ECB puts on the table a prudent action plan with which it tries to keep prices at bay without excessively damaging the recovery.

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