E.C.B. Will Slow Its Crisis-Era Bond Buying

The European Central Bank is expected to update its inflation and economic growth forecasts later on Thursday.

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The European Central Bank will slow its crisis-era bond buying.

Sept. 9, 2021Updated 8:33 a.m. ET

The European Central Bank said on Thursday it would slow down the pace of its pandemic-era bond-buying program, one of the main tools it has used to support the eurozone economy through lockdowns, citing “favorable financing conditions” and the inflation outlook.

The program, which has lately been purchasing about 80 billion euros, or $95 billion, of mostly government bonds each month, is a way to keep borrowing costs low and encourage economic growth.

Other policy measures were left unchanged. Interest rates were held steady, including the so-called deposit rate, which remained at negative 0.5 percent. Policymakers also maintained the size of the bank’s other bond-buying program that was restarted in 2019 to head off a regional recession.

In the eurozone, inflation is rising faster than expected, supply chain disruptions and product shortages are pushing costs higher for manufacturers, and there are early signs that the economic recovery is slowing down.

It’s a concoction that has created divisions among the central bank’s policymakers about when to slow and then end its enormous bond-buying program. It began in March 2020 as the pandemic spread across Europe, and is meant to buy a total of 1.85 trillion euros in bonds and run until at least next March. The slowdown would help ensure the purchases end on schedule, though the central bank hasn’t ruled out an extension.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases,” the central bank said in statement on Thursday.

Thursday’s decisions are the first test of the central bank’s updated forward guidance. In July, policymakers said they were willing to overlook short-term jumps in inflation and would raise interest rates only once it was clear the annual inflation rate would reach 2 percent “well ahead” of the end of the central bank’s projection horizon and stay around that level over the medium term.

New projections for inflation and economic growth will be published later on Thursday when the central bank’s president, Christine Lagarde, will hold a press conference.. The previous forecasts, in June, predicted inflation would peak at 2.6 percent in the fourth quarter and decline to 1.5 percent in 2022 and 1.4 percent in 2023.

But inflation has already risen to 3 percent in August, the highest in nearly 10 years, the region’s statistics agency said last week. So far, policymakers have been betting that the jump in inflation will be temporary, like other central banks around the world.

In recent years preceding the pandemic, the inflation rate was below the bank’s 2 percent target.

“The stars are much better aligned than they have been for a long time for the return of inflation back to 2 percent,” Klaas Knot, the governor of the Dutch central bank and a member of the governing council at the European Central Bank, said last week.

Jens Weidmann, the head of the German central bank, said that policymakers shouldn’t ignore the risk of “excessively high inflation” and that they should not “commit to our very loose monetary policy stance for too long.”

But the European Central Bank as a whole has been more cautious than the Federal Reserve and Bank of England about preparing markets for a return to normal policy. While the economy is rebounding — rising 2.2 percent in the second quarter from the first three months of the year — Ms. Lagarde has highlighted the uncertainty posed by the spread of the Delta variant.

Recently, Philip Lane, the central bank’s chief economist, said there were headwinds for the economy in the second half of the year, including supply-chain bottlenecks that could be more persistent than expected.

While the pandemic-era bond program might be approaching its end, the central bank is expected to maintain its older bond purchase effort, under which the bank buys 20 billion euros in assets a month. Many analysts expect policymakers to increase the size of purchases to keep providing stimulus to the economy even after the immediate impact of the pandemic has passed.

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