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The European Union's central bank said Thursday that it's slowing down the bond-buying program launched to keep the economy afloat during the Covid-19 pandemic.

Now, the bank has a delicate balancing act on its hands between inflation, which is climbing faster than expected, and economic recovery, which indicators suggest is slowing down. And other central banks will be paying close attention to the ECB's handling of the situation.

Watching With Interest

Since last March, the European Central Bank has been buying roughly 80 billion euros ($95 billion) of government bonds every month to lower borrowing costs and stimulate economic growth. In Thursday's update, the ECB didn't say how much it will slow purchases, but they're expected to dip to between 60 to 70 billion euros per month going forward, depending on market conditions.

Other central banks launched similar programs during the pandemic, notably the U.S. Fed and the Bank of England, both of which will no doubt be watching closely as the ECB contends with striking a prudent economic balance:

  • On one hand, fiscal stimulus has been driving up Eurozone inflation, which hit a decade high of 3% in August. The ECB predicted in June that inflation would peak at 2.6%, a cap that's already been burst. Slowing the bond-buying program is a step toward simmering down rising prices.
  • On the other hand, retail sales in the EU fell 2.3% from June to July, a dip unanticipated by economists. And last week, a key measure of European business confidence, the IHS Markit PMI business expectations index, fell to a four-month low of 68.9. Those results support a case for further stimulus.

The T-Word: "The lady isn't tapering," ECB president Christine Lagarde insisted at a news conference Thursday, referring to the practice of winding down stimulus programs. "We are not out of the woods, we are not on the green, as the golf players will appreciate."

Staying Low: In support of Lagarde's assertion, the ECB maintained interest rates at historic lows, including the -0.5% deposit rate. The bank also moved to keep a separate bond-buying program from 2019 still running.