On September 9th, all eyes were on the European Central Bank as a key announcement was expected on a long overdue tapering decision. After pulling out all the stops last year with its Pandemic Emergency Purchase Programme (PEPP) and asset purchases worth 80 billion euros each month, inflation fears have recently been on the rise… and with good reason.

Across the bloc, consumer prices have been rising for months and Eurozone inflation hit a 10-year high in August. Many conservative economists and market analysts have warned that without a real policy adjustment, the ECB could cause the economy to overheat and risk runaway inflation. Instead of heeding these calls for constraint and monetary prudence, the central bank council unanimously decided to opt for an almost negligible adjustment to its current policy direction.

President Lagarde announced that the bank will slow the pace of its pandemic bond-buying program in the final quarter of 2021, but strongly insisted that this shift should not be read as “tapering”. She provided no details or a concrete plan on when exactly the trim will happen and by how much the bank will scale down its asset purchasing program, but according to reporting by Reuters, “three sources with knowledge of the discussion said that policymakers set a monthly target of between 60 billion and 70 billion euros”.

Of course, this is merely a drop in the bucket, and it is extremely unlikely to have an impact on climbing prices, especially in light of the fact that the ECB also reiterated its pledge to keep the 1.85 trillion-euro program running until March 2022 or even later, while the pre-pandemic bond buying program will also remain unchanged.

This decision to keep the money tap open contrasts the policy direction signaled by other major central banks, including the Fed. While no official tapering schedule has been announced, central bank officials elsewhere have at least communicated their intentions to wind down their emergency aid.

As we predicted in our previous articles and market analyses, the era of “lower for longer” rates and aggressive money printing is nowhere near being over. Policymakers appear to be solely focused on avoiding a “taper tantrum” in the markets and on doing all they can to keep borrowing costs extremely low, while ignoring inflationary pressures.

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