ECB has other purchase programmes in toolkit than PEPP, Lagarde says

BY Reuters | ECONOMIC | 11/26/21 11:10 AM EST

BERLIN, Nov 26 (Reuters) - The European Central Bank is likely to stop further bond purchases under its pandemic-era support scheme from early next year but will still have other purchasing programmes in its toolkit, President Christine Lagarde was quoted as saying by a German daily.

The ECB backstop Pandemic Emergency Purchase Programme (PEPP) has allowed the vulnerable bond markets of Italy, Spain, Portugal and Greece to borrow and spend freely during the coronavirus pandemic without being punished by investors.

"Given current circumstances, I expect that we will not carry out any further (PEPP) bond purchases from early next year," Lagarde was quoted by the Frankfurter Allgemeine Zeitung as saying.

"That doesn't mean that PEPP will be totally ended because we have to replace the expiring bonds. And do not forget that we have other purchase programmes in our toolkit."

Her comments came as two ECB policymakers said the euro zone economy faced a fresh challenge from a rise in coronavirus cases and a new variant

Lagarde also said the ECB will act on interest rates when necessary and when price rises reach 2% on a sustained basis but she expected inflation to fall from January.

"It's eye-catching at the moment and is worrying a lot of people but we do not expect this rise in inflation to last," Lagarde said.

"Next year it will calm down again. Already from January onwards, we expect the inflation rate to begin falling."

(Reporting by Maria Sheahan and Kirsti Knolle, Writing by Sarah Marsh; Editing by Emelia Sithole-Matarise)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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