ECB willing to adjust debt purchases to the evolution of Russia’s invasion of Ukraine

The purchase of debt by the European Central Bank (ECB) may be adjusted to the evolution of the economic consequences of the war in Ukraine after the Russian invasion, admitted its president, Christine Lagarde, who declared that “options remain open” in that area.

“We have decided that if the outlook changes and financial conditions become inconsistent with further progress towards our 2% (inflation) target, we are ready to adjust the size and/or duration of our purchases.”, Lagarde said at a forum held in Frankfurt (southern Germany).

“In this way, we keep open the option of taking the necessary measures in case the economic consequences of the war intensify and suffocate the current path of recovery.Lagarde added.

The President of the ECB declared that the policy of the institution in this regard in the coming months “It will depend on the data. We will confirm the way forward only once we have more visibility on whether our medium-term inflation expectation materializes.”.

He recalled that the stock of asset purchases “will exceed 5 billion euros in the third quarter and will be reinvested even after the end of net purchases”.

He added that, in terms of official ECB interest rates, these will be adjusted “some time later” of the end of asset purchases.

“This gives us additional headroom if needed after we stop buying bonds and before we take the next step towards normalization. This will allow us to test whether the convergence of inflation to our target that we project today is robust in the face of current and potential shocks.”.

And he added that “future rate adjustments”, when they do occur, they will be gradual.

Lagarde’s statements come a week after the ECB officially admitted that “the Russian invasion of Ukraine is a turning point” and that for this reason it has decided to review and accelerate the schedule of debt purchases for the coming months.

After the meeting of the Governing Council on March 10, the ECB announced that it will end the debt purchases due to the pandemic at the end of March and that it modifies the schedule of debt purchases from another monetary stimulus program (APP).

The ECB is going to buy debt with this other program in April for a value of 40,000 million euros, in May for a value of 30,000 million euros and in June for 20,000 million euros.

Previously, the ECB had decided that monthly debt purchases under the APP program would have an amount of 40,000 million euros in the second quarter of 2022 and 30,000 million euros in the third quarter.

Starting in October, the Governing Council was going to maintain debt purchases at a monthly rate of 20 billion euros.

The ECB left its interest rates unchanged seven days ago and already then assured that it will begin to raise them at some point after it finishes buying debt and in a “gradual” way, as Lagarde confirmed today.