ECB’s de Cos: Most Likely We Will Decide in June to End APP in July and Might Then Hike Rates Soon

14 May 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank will probably agree next month that net asset purchases under the asset purchase programme (APP) should end in July, and might increase official borrowing costs soon thereafter, Governing Council member Pablo Hernández de Cos said Saturday.

‘On the position that I have on the current monetary policy decisions, I think we are converging … to a kind of, of consensus’, de Cos, who heads Banco de España, said during a public Q&A at an event in Frankfurt.

‘I mean, we have inflation in the medium term now well anchored at 2%’, he said, which is ‘a novelty as compared to the situation that we have lived during the last 10 years.’

All in all, ‘I think there is … a clear case for normalising monetary policy’, he said, a process already started with the end in 1Q of the pandemic emergency purchase programme (PEPP).

‘Now we will end, most likely this will be the decision in our meeting in June for ending the APP in July, and then we will start to discuss and maybe soon increase rates’, he said. ‘And this is fully compatible with the framework that we have, with the fact that we are observing inflation anchored at 2%, and that we therefore can and should normalise policy in that context.’

De Cos described the ECB’s conduct of normalisation as ‘doing it in a very gradual manner’ and emphasised the Council’s consensual view. Most or all members ‘are converging to one idea of when we are going to finish, ending our APP and when we might increase rates for … the first time’, he said. ‘So I wouldn’t overemphasise these … differences, because I don’t think they are playing a significant role. I think the consensus is there and the consensus in my view will … remain.’

Historically, the US Federal Reserve’s policy normalisation has been associated with ‘some turbulence, some tensions in emerging markets’, he noted. ‘It’s true that this time it’s not happening, okay, and probably this is true also by the fact that many emerging markets have done also their work in the last years in terms of creating buffers, having good frameworks for monetary policy, etc. But the risk is there.’