Lagarde: Good Time To Taper PEPP, Didn't Discuss Rate Cuts "At All"

In the following exchanges, Lagarde notes that it's a "good moment" to shift PEPP policy and it's "totally unrelated to what we will do on rates". She notes that the Governing Council did not discuss rate cuts "at all" at this meeting.

Q: Is the earlier fading of PEPP reinvestments a prerequisite for rate cuts and are these likely in March?

• A: Everyone on the GC was fine with stopping reinvestments in 2024, some would have liked a different tapering (earlier or later). This is balance sheet normalisation. It is a good moment to do this as we have little in the way of fragmentation and markets have absorbed the decline in APP reinvestment. It is on a standalone basis and will operate on the back burner without being significant. It’s totally unrelated to what we will do on rates. Rates are the primary tool and we will use that independently of what will happen with PEPP.

Q: Was there any discussion from anyone about rate cuts and how it could be done? You previously said there would not be rate cuts for a couple of quarters, do you maintain that view?

• A: We did not discuss rate cuts at all.
• A: We are going to continue being data dependent and meeting-by-meeting.