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Lane interview highlights (2/2)

ECB
  • Lane outlines 3 considerations when PEPP ends:
    • "Whenever PEPP ends and we rely on APP as the primary QE instrument, the driver of policy will be the gap between where inflation is projected and our medium-term two per cent target. Our strategy is crystal clear, we will set monetary policy to deliver on our target in the medium term."
    • "A second consideration is net bond supply. You cannot think about the volume of the APP independently of the volume of net bond supply. The relatively high fiscal deficits that we saw last year and this year will not be lasting in the coming years, but the scale of deficits may remain higher than the pre-pandemic levels."
    • "A third element is investor demand: we have seen this year significant shifts in investor demand, and such investor demand shocks are relevant in thinking about the appropriate calibration of net asset purchases."
  • Full interview available here.
  • Little market reaction but the key in the MNI Markets team's view is the explicit comments linking the pace of APP to both net bond supply and investor demand. This is something that the market is well aware of, but to hear it officially confirmed that these are parameters that the ECB is looking at is still significant for the market.
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