Posted By Jessica Weisman-Pitts
Posted on March 10, 2022

FRANKFURT, March 10 (Reuters) – The European Central Bank plans to end asset purchases in the third quarter, it said on Thursday, accelerating its exit from extraordinary stimulus in a surprise move, as soaring inflation outweighs concerns about Russia’s shock invasion of Ukraine.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
INFLATION RISKS
“While we’re clearly of the view that given the drivers behind inflation – energy predominantly for the moment, supply bottlenecks, food prices increases and a broader increase of prices in general, which is coming from energy predominantly and translates throughout those items. Clearly risks to inflation is to the upside, particularly in the short term but possibly also in the medium term, but not exclusively because risks to inflation could also be to the downside.”
SUPPORT FOR UKRAINE
“We are actually exploring, together with other European authorities and in particular with the Commission, how we can deploy tools in order to support the Ukrainian people and the Ukrainian authorities.”
“We have conditions under which we can extend swap lines and repo lines. And if those conditions are not satisfied, we need to find alternative ways of providing support.”
“So we are really working hard. I hope that in the next few days we’ll be able to provide tools and means to extend support to both the people and to the authorities, together with the Commission and sometimes in some cases, national authorities within the Euro system.”
DIVIDED OPINION
“There were some members who thought that given the uncertainty we have we should be uncertain as well and do nothing. There were other members who thought that despite the uncertainty we should move ahead and not have any conditionalities.
“You have both ends of the spectrum.”
IMPACT OF SANCTIONS
“The financial sanctions against Russia, including the exclusion of some Russian banks from Swift, have so far not caused severe strains in money markets, or liquidity shortages in the euro area banking system.”
“Bank balance sheets remain healthy overall, owing to robust capital positions and fewer non-performing loans. Banks are now as profitable as they were before the pandemic. Bank lending rates for firms have increased somewhat, while lending rates for household mortgages remain steady at historically low levels.”
NOT ACCELERATING NORMALIZATION
“(Your) question related to accelerating normalization. That was not the decision that was made today. The decision that was made was to progress step-by-step, to acknowledge the added uncertainty that we are facing, and to therefore have added optionalities so that we can, in all circumstances, respond in an agile way.
“We are not in any way accelerating. This was in line with our December meeting, with our February meeting and press conference.”
DETERMINATION TO BACK PROPOSAL
“There were different views around the table in all directions, but after those good discussions, there was a determination by all Governing Council members to rally (behind) the proposal that was put together by the Executive Board… It takes a balanced approach. It delivers on the mandate that we have, which, as you know, is price stability in the face of what we are seeing.”
INTENSE DISCUSSIONS
“We had very intense discussions about the current economic situation, about the outlook, about the uncertainty.”
DATA TO INFLUENCE APP SKED
“If incoming data supports our expectation that the medium inflation outlook will not weaken even after the end of our net asset purchases, the Governing Council will conclude net purchases under the APP in the third quarter. If the medium term inflation outlook changes and if financing conditions become inconsistent with further progress towards our 2% target, we stand ready to revise our schedule for net asset purchases in terms of size and/or duration.”
ECONOMIC RISKS
“The risks to the economic outlook have increased substantially with the Russian invasion of Ukraine and are tilted to the downside. While risks relating to the pandemic have declined the war in Ukraine will have a stronger impact on economic sentiment and could worsen supply-side constraints again.”
FORWARD GUIDANCE
“The Governing Council expects the key ECB rates to remain at their present level until it sees inflation reaching 2%, well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that the realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium-term.”
INTEREST RATE PATH
“The path for the key ECB interest rates will continue to be determined by the Governing Council’s forward guidance and by its strategic commitment to stabilize inflation at 2% over the medium-term.”
NEGATIVE ALTERNATIVE SCENARIOS
“In alternative scenarios for the economic and financial impact of the war… economic activity could be dampened significantly by a steeper rise in energy and commodity prices and a more severe drag on trade and sentiment.”
INFLATION
“The Governing Council sees it as increasingly likely that inflation will stabilise at its 2% target over the medium term.”
SOLID UNDERLYING CONDITIONS
“The impact of the Russia/Ukraine war has to be assessed in the context of solid underlying conditions for the euro area economy helped by ample policy support.”
FADING COVID EFFECT
“The recovery of the economy is boosted by the fading impact of the Omicron coronavirus variant. Supply bottlenecks have been showing some signs of easing and the labour market has been improving further.”
RANGE OF SCENARIOS
“In recognition of the highly uncertain environment, the Governing Council considered a range of scenarios in today’s meeting.”
MATERIAL IMPACT FROM WAR
“The Russia/Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects will depend on how the conflict evolves, on the impact of current sanctions, and on possible further measures.”
(Reuters Global News Desk)