ECB’s de Cos: More Room to Delay Rates Lift-Off After Net Asset Purchases End

29 March 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank has more room to wait after ending net asset purchases before starting to hike interest rates, ECB Governing Council member Pablo Hernández de Cos said Tuesday.

In a speech at a breakfast meeting organised by a think tank, de Cos, who heads Banco de España, said with respect to the recent change of forward guidance, according to his formal presentation, ‘The scope for a longer time lag between the end of net purchases and the point at which interest rates will start to be raised is widened.’

Interest rate moves would in any case be gradual, he said. As for net asset purchases under the asset purchase programme (APP), these would cease in 3Q provided that ‘new data support the expectation that the medium-term inflation outlook will not weaken’, he said.

‘However, if the medium-term inflation outlook changes, the net asset purchase plan (both amount and duration) will be revised’, he said.

Fragmentation would be addressed by flexibly reinvesting maturing debt from the pandemic emergency purchase programme (PEPP) ‘or, where appropriate, with alternative instruments’, he said.

De Cos repeated the view that Russia’s war of aggression against Ukraine ‘will generate a negative impact on growth, which could be very significant, particularly in the short term and in a context in which the euro area economy is still far from its potential level, which could reduce inflationary pressures in the medium term, the relevant time horizon for monetary policy.’