ECB will trim the APP at a faster pace – UOB

Lee Sue Ann, Economist at UOB Group, assesses the latest ECB event.

Key Takeaways

“The European Central Bank (ECB) said it will scale back its bond buying faster than planned, as Russia's war on Ukraine is a ‘watershed moment for Europe’. It plans to end its Asset Purchase Programme (APP) buying in 3Q22, if economic data allows it. Any adjustments in interest rates will take some time after asset purchases end, adding this would be gradual.”

“Amid surging energy costs, the ECB raised its inflation outlook for this year to 5.1%, up from 3.2%. This forecast was expected to cool to 2.1% in 2023, before dipping to 1.9% in 2024, marginally below the central bank’s target of 2%.”

“Unlike the other central banks, the ECB has a war on its doorstep. Thus, keeping its options open and maintaining full flexibility is what the ECB needs. Crucial in determining the timing of the first hike will be how the Russia-Ukraine war evolves and the impact that has on energy prices. We are in the midst of revising our growth and inflation forecasts for the Eurozone as well as our ECB policy rate forecasts, which will be published in the 2Q22 Quarterly Global Report due later this month.”