How Pepp dances according to the ECB
As the ECB leaders discuss the scope and objectives of the Pepp (Pandemic Emergency Purchase Program)
From the minutes of the July meeting of the ECB it emerges that on that occasion there was a long discussion about the flexibility of Pepp and that for some members this flexibility means that its endowment "must be considered a ceiling and not a target". For other members, the "incoming data" suggests that the pandemic Qe capacity "may not have to be fully used". For other ECB members, on the other hand, based on the “June forecasts and in the absence of significant upside surprises for the medium-term inflation outlook, the current presumption is that the Pepp endowment must be used in full”.
"As for the Pepp – reads the minutes – the flexibility of the program was highlighted as a key element of its effectiveness and efficiency in supporting the transmission of monetary policy over time and between asset classes and jurisdictions".
The report adds that "it has also been argued that Pepp's flexibility suggests that its net purchasing capacity should be considered a ceiling rather than a target".
Furthermore, during the discussion "it was emphasized that the incoming data surprised on the upside and some of the downside risks surrounding the outlook in June were reduced, increasing the possibility that the endowment may not have to be fully utilized".
At the same time, it was recalled "that the Pepp was conceived to achieve the dual objective of addressing the risks for the regular transmission of monetary policy in the euro area and the risks for medium-term price stability due to the pandemic crisis ".
More specifically, the plan “aims to offset the pandemic-related downward shift in the predicted path of inflation. Consequently, in the baseline scenario of the June Eurosystem staff macroeconomic projections and in the absence of significant upside surprises for the medium-term inflation outlook, the current presumption was that the Pepp endowment should be used in full " .
In essence, some of the ECB advisors do not look favorably on the possibility of a new increase in the purchase program , for which a target of € 1,350 billion is set.
"It has also been said that the flexibility with which Pepp purchases are proceeding seems to indicate that the amount [of 1,350 billion] should be considered a ceiling more than a target", reads the transcript of the meeting ended on July 16.
However, it seems to be – Reuters notes – a minority position, since "in the base scenario, the amount will be used in its entirety".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-balla-il-pepp-secondo-la-bce/ on Thu, 20 Aug 2020 13:00:30 +0000.