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ECB to keep policy loose this year despite high inflation risks: Reuters poll By Reuters

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ECB to keep policy loose this year despite high inflation risks: Reuters poll By Reuters
© Reuters. FILE PHOTO: The European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany, on March 7, 2018. REUTERS / Ralph Orlowski

By Richa Rebello

BENGALURU (Reuters) – The European Central Bank will not change the overall size of its asset purchase program at its June 10 meeting, but will begin to reduce its pandemic purchases later this year, according to a Reuters poll that also showed upward inflation risks.

With an economic recovery underway and increasing price pressures, clearance orders for emergency purchases have increased in recent weeks. But several members of the ECB have said a decision to cut purchases was unlikely to be made at the June 10 economic policy meeting.

Nearly 90% of economists, or 34 out of 39, in response to an additional question in the Reuters poll from May 28 to June 2 said the ECB would leave the € 1.85 trillion in asset purchases unchanged. under its Pandemic Emergency Purchasing Program (PEPP) at its June meeting.

“As the recovery begins to accelerate, the ECB continues to walk a fine line between preserving favorable financial conditions and beginning to undo some of the emergency support measures revealed during the pandemic,” said Angel Talavera, director of European economics from Oxford Economics.

“Given the still fragile state of the economy, we believe that the ECB will maintain the level of asset purchases at its next policy meeting in June.”

When asked when the ECB would start reducing its asset purchase program, a small majority of economists, or 20 out of 35, said at some point this year, including 13 that they expected a start as early as next quarter.

That was despite the fact that many ECB policy makers highlighted the risks of premature adjustment.

When asked if the ECB would change the current March 2022 end date for its PEPP, 28 out of 39 economists said no.

And in response to another question, 31 out of 36 said the risks to their inflation outlook over the next year were more upward than downward.

Several authorities at the ECB have said that the central bank would analyze higher inflation expectations for a time before acting, considering them transitory.

The survey showed that headline inflation would rise sharply to an average of 1.8% this year.

Consumer prices rose 2.0% in May compared to a year earlier, according to a preliminary estimate, surpassing the ECB’s target of just under 2% for the first time since 2018.

On a quarterly basis, inflation was expected to rise and average 1.8%, 2.1%, and 2.4% in the second, third, and fourth quarters of 2021, respectively.

If the fourth quarter forecast holds, it would be the highest average for any quarter since 2012.

Graphs from the Reuters survey on inflation and economic growth outlook for the euro zone: https://fingfx.thomsonreuters.com/gfx/polling/yxmpjalygvr/EZ%20June.PNG

But that increase is likely to be transitory, as inflation was forecast to decline sharply to an average of about 1.4% each quarter next year.

“The jump in euro zone inflation in May will not be the end of the uptrend,” said Andrew Kenningham, chief economist for Europe at Capital Economics.

“However, most of the increase is due to temporary factors, including higher energy inflation, and we expect the headline rate to fall well below the ECB’s target again next year.”

The growth outlook for the euro zone improved slightly, with the consensus pointing to an average growth of 4.2% this year and next, compared to 4.1% for the two years forecast last month.

“With the increasing relaxation of coronavirus restrictions, economic and social life will resume in the coming weeks. We expect the economy to recover strongly once the lockdown ends, similar to the summer of 2020,” said Christoph Weil, economist senior of Commerzbank (DE :).

(For other stories from Reuters’ long-term global economic outlook survey package 🙂

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