ECB PEPP Tapering to Begin but Precise Change in Pace Not Disclosed

September 9, 2021

The European Central Bank left its -0.50% deposit rate, zero percent refinancing rate and 0.25% marginal lending facility rate unchanged. These record lows have been maintained since March 2016. But an initial step toward tapering quantitative stimulus was announced. While the overall size of the Pandemic Emergency Purchase Program (PEPP) stays at 1.85 trillion euros, a moderately lower pace of net asset purchases under the PEPPĀ  will be undertaken next quarter, justified by “the slight improvement in the medium-term inflation outlook and the current level of financing conditions.” Today’s statement modified growth and inflation forecasts slightly but did not change other elements of policy such as forward guidance, asset reinvestment, regular asset purchases (APP) and the LTROs. Projected inflation in 2021 was bumped up to 2.2% from 1.9% estimated three months ago and forecasts of 1.5% made last March and 1.8% imagined at the December 2020 review. Projected CPI inflation in 2022 and 2023 of 1.7% and 1.5% remain below the symmetrical 2.0% medium-term target. Regarding growth, officials now see GDP advancing 5.0% in 2021, revised up from 4.6%, then 4.6% in 2022 (revised down from 4.7%) and 2.1% in 2023 (unchanged from the forecast made last June, March and December).

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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