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MNI ECB REVIEW: June 2021 - Gearing Up For September

For the full publication please see:

ECB Review Jun 2021.pdf

The ECB left its main policy parameters unchanged at the June meeting, reaffirming its commitment to conduct purchases under PEPP at a "significantly higher" pace than at the beginning of the year. President Lagarde reiterated her position that talk of a PEPP taper was premature and highlighted the unanimous support for the introductory statement. However, indications that not all members of the Governing Council supported all aspects of the policy decision, alongside a marked improvement in the economic growth forecasts, suggests that speculation of a taper has not been fully quashed.

This sets up the September meeting as being a key date in the calendar. At that point there will be far more visibility on the extent to which the economy has recovered and how close member states are to getting 70% of the population vaccinated against Covid-19. Given that by September there will be just over six months until the official expiry of PEPP, this would be an opportune time to consider the exit strategy, or prolongation if the recovery disappoints.

Finally, given the clearly still weak medium-term inflation projection, the ECB is implicitly signalling that policy will need to remain accommodative for some time, suggesting that the APP is likely to take over once PEPP is concluded.