— But Details of Post-PEPP Stimulus Unlikely to Come From Dec Meeting
LONDON (MaceNews) – The European Central Bank is likely to provide greater detail on the winding up of its emergency asset purchase programme following its policy meeting this week, but is unlikely to say much about further quantitative easing.
“This is more of a diagnostics meeting,” said Simon French, chief economist at UK investment bank Panmure Gordon. “The question is, how open ended do they want to be” with regard to future asset purchases.
The ECB’s governing council has committed to slowing the pace of asset purchases under the Pandemic Emergency Purchase Programme; back in October, ECB president Christine Lagarde suggested that the initiative will conclude in March.
The Bank’s long-term Asset Purchase Programme has been acquiring €20 billion in assets per month throughout the pandemic, and various governing council members have suggested that the APP could take over much of the monetary policy heavy lifting after the PEPP ends. However, analysts do not expect any APP announcement following the December meeting. “I suspect they will leave that until the new year,” said French.
Unlike the PEPP, APP purchases are limited to investment-grade securities, which would prevent the ECB from acquiring Greek bonds under current rules. Investors will be looking for guidance from Lagarde and other members as to strategies to prevent Greek yields rising substantially.
The ECB will also prevent updated economic forecasts at this week’s meeting, with the inflation projection for 2021 expected to rise further from the 2.2% predicted back in September.
President Lagarde, along with chief economist Philip Lane, has repeatedly stressed that ECB envisions inflation falling back to 1.7% in 2022, removing the need for tighter monetary policy, despite HICP rising to an annual rate of 4.9% in November, the highest since the formation of the euro.
However, any rise in projected inflation above the ECB’s 2.0% target may stir market speculation of an earlier rate hike, countering Lagarde’s insistence that rates are highly unlikely to rise in 2022.
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