A $2.19 trillion bond buying programme by the European Central Bank will be cut next quarter, but rates will be left unchanged, the bank announced on Thursday. The Bank of England, however, took a different route and announced a rate hike, becoming the first central bank from among leading economies to do so since the start of the pandemic.
The BoE raised interest rates from a record low of 0.1 per cent to 0.25 per cent to rein in rising inflation.
The ECB, at the same time, pledged further stimulus: While it would cut purchases under the Pandemic Emergency Purchase Programme (PEPP), it would ramp up bond buys under the Asset Purchase Programme. Its benchmark refinancing rate remains unchanged at 0 per cent while the rate on marginal lending facility remains at 0.25 per cent. Deposit facility rates were kept at -0.5 per cent.
“The Governing Council judges that the progress on economic recovery and towards its medium-term inflation target permits a step-by-step reduction in the pace of its asset purchases over the coming quarters,” the ECB said in a statement on Thursday. The bank said the decisions would allow it to maintain flexibility and optionality in its monetary policy decisions.
The move comes after the US Federal Reserve signalled that it could have three rate hikes in 2022 as it tries to battle mounting inflation.
All three central banks are acting at a time of added uncertainty over global trade, as the advent of the Omicron variant threatens a global economic recovery that has already been hampered by the supply chain crunch.
In the US, high inflation has persisted, with consumer price inflation accelerating at its fastest pace in nearly 40 years.
In the UK too, inflation has been high, at 5.1 per cent in November, compounded by soaring energy prices and the global supply-chain crunch.
