European Central Bank Looks To Reduce Bond Purchases

The European Central Bank (ECB) is considering reducing its bond purchase program as early as this summer.

The ECB put forward an emergency bond-buying program in March 2020 to deal with the economic shock of the global pandemic. This program, known as the PEPP, is currently set to end in March 2022 and total up to 1.85 trillion euros ($2.2 trillion U.S.)

However, many members of the Eurozone’s central bank are less keen to use the full amount provided by the emergency purchase program, wary of a long intervention in markets.

Robert Holzmann, Governor of Austria’s central bank, says that the ECB is now considering ending the bond purchase program earlier than expected. In addition to expecting fewer bond purchases in the latter part of this year, Austria’s central bank chief also sees upside risks for the Eurozone, given that business activity and vaccination rates are picking up.

The ECB has forecast 4% gross domestic product (GDP) growth for the Euro area in 2021, after the region contracted by almost 7% in 2020. The central bank sees GDP standing 2.3% above pre-crisis levels by the end of 2023.

Some economists have recommended that the European central bank frontload bond purchases to contain borrowing costs for Euro area governments.

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