Market participants are keenly watching the European Central Bank this week as it meets to discuss its pandemic-era stimulus amid soaring inflation and solid economic growth. Some believe it’s time that the ECB reduces its monetary stimulus as global supply chain problems push prices higher for all sorts of goods. Inflation in the eurozone hit a 10-year high of 3% in August, while the gross domestic product in the second quarter surprised to the upside with a 2% gain quarter-on-quarter. Currently, the ECB buys 80 billion euros worth of bonds every month under the program, which will likely be reduced to 70 billion euros. The ECB has also kept its asset purchase program amid the pandemic, with a current monthly pace of 20 billion euros. The central bank has been using this program to sustain the 19-member economy.
There’s not much noise from the ECB’s doves, which makes it likely that a reduction in the run rate of the program won’t prove to be too controversial. For now, the ECB will avoid any significant movements but will instead wait for more data coming in and for more evidence that the eurozone is really out of the pandemic doldrums.