Why the ECB will not give up on Pepp
What the ECB will and will not do. The comment by Giuseppe Sapphire Puopolo, portfolio manager Moneyfarm
As expected, the European Central Bank (ECB) has renewed its commitment to maintain the current pace of asset purchases despite the signs of economic recovery.
President Christine Lagarde and her colleagues said net purchases under Pepp in the next quarter will continue to be conducted at a significantly higher pace than in the first months of the year. They also left interest rates, long-term loans to banks and the old bond buying program unchanged.
The ECB accelerated the pace of its € 1.85 trillion bond purchase program three months ago and today's decision suggests it will continue at this rate likely until September. While both the growth outlook and inflation forecasts have likely been revised upwards, policymakers in the euro area and the US argue that prices are being driven by temporary factors that will be resolved shortly, including rising costs. of fuel and bottlenecks in production.
The ECB was clear in communicating how it believes it is early for a debate on the reduction of measures against the pandemic, suggesting that the emergency program will remain in force until March 2022, the date on which it is currently expected to end.
In our opinion , any announcement in the near future that plans to slow down purchases would not be interpreted as a particularly aggressive signal, especially if the expected process is gradual. Similar considerations apply to the United States and to the Fed's monetary policy, which for the moment remains expansionary despite the signs of a rebound coming from the labor market and inflation.
At the moment, the tone used by the Central Banks and the monetary policies undertaken continue to provide important support for risky assets: today's comment from the ECB confirms the direction.
The prospects for European inflation are a fundamental element in the political decisions of the ECB and, for now, remain under control. Consensus expectations see inflation still below the Central Bank's target, both in the short (2 years) and long term (10 years). For this reason it seems reasonable to assume that the political support of the ECB will remain intact for a long time, regardless of its decision on the pace of asset purchases.
We therefore believe that if the ECB were to reduce the pace of asset purchases in the coming months, this should be seen as an operational decision, rather than a policy.
The ECB has pledged to maintain its political support for the duration of the pandemic crisis, at least until early 2022. We therefore expect the support to remain in place, given the outlook for below target inflation. .
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This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-la-bce-non-mollera-sul-pepp/ on Mon, 14 Jun 2021 05:37:48 +0000.