ECB begins step-by-step stimulus exit

The European Central Bank on Thursday said it would wind down pandemic-era bond buys as the eurozone comes under pressure from soaring inflation, even as concerns grow about the fast-spreading Omicron variant of the coronavirus.

The eurozone has "become better at coping with the pandemic waves", said ECB President Christine Lagarde, adding that progress in the economic recovery "permits a step-by-step reduction in the pace of our asset purchases over the coming quarters."

Lagarde admitted however that Omicron and the potential emergence of other variants created "extra uncertainty", and said the bank was ready to react to any "negative shocks".

The ECB's chosen course sets its apart from the US Federal Reserve, which is speeding up its stimulus exit and has flagged a number of rate hikes over the coming years to tame inflation.

In Frankfurt, the ECB confirmed the end of its 1.85-trillion-euro ($2.1 trillion) pandemic-era bond purchasing programme (PEPP) in March 2022, and said it would start slowing the pace of purchases in the first quarter.

The pandemic emergency bond-buying programme, currently hoovering up around 70 billion euros worth of assets every month, is the ECB's main crisis-fighting tool, aimed at keeping borrowing costs low to stoke economic growth.

To avoid an abrupt drop in its bond-buying in March, the ECB will ramp up its pre-crisis asset purchase programme (APP) to soften the transition. This would be increased in the second quarter to 40 billion euros, and reduced to 30 billion in the third quarter, the ECB said.