According to European Central Bank's chief economist Philip Lane, the ECB may end bond purchases as eurozone inflation is approaching the bank's 2% target.
According to European Central Bank's chief economist Philip Lane, the ECB may end bond purchases as eurozone inflation is approaching the bank's 2% target.
In February, the ECB revised its positions not to raise interest rates this year due to price pressures. Now, policymakers are preparing to curb the bond-buying program. By the end of the year or in early 2023, the ECB will probably raise the key rate.
While inflation reached an all-time high of 5.1% last month, the ECB predicted a fall below 2% by next year. The regulator predicted inflation to remain at this level until 2024.
Philipp Lane has noted many times that inflation pressures are still too weak, so the stimulus is warranted. However, judging by yesterday's comments, it is clear that his views are changing.
"The data clearly suggest that we could be moving closer to our medium-term target," Lane pointed out.
"If inflation rates are moving towards our target in the medium term, which is now looking more likely ... we will adjust monetary policy, because we would then, for example, no longer need to make asset purchases," he said.
He suggests that in such a scenario, normalization of monetary would suffice.
Lane also pinpointed that any increase in the interest rate may occur only after the termination of bond purchases, pushing back assumptions of economists and politicians that the sequence may be reversed.
Asset purchases, known as quantitative easing, will now be in effect indefinitely. Speculators expect the ECB to stop QE in the third quarter and then raise the key rate either in the third or fourth quarter.
Lane also warned that the conflict between Russia and Ukraine is the main risk factor as it could affect energy prices, investor confidence, trade, and consumption.
"The geopolitical tensions are a very important risk factor right now, for Europe in particular," he said.
