MNI POLICY: ECB Accounts Show Debate On PEPP Expansion Timing

By Luke Heighton

     FRANKFURT (MNI) - The Governing Council of the European Central Bank was

unanimous in acknowledging the need for further action to support Europe's

economy through the Covid-19, the official account of the June monetary policy

meeting shows, though there was disagreement over the timing and the size of the

Pandemic Emergency Purchasing Programme's expansion.

     "All members agreed that further monetary policy action was needed, in

accordance with the Governing Council's price stability objective," the account

said. But it added: "At the same time, some reservations were expressed about

the precise timing and proposed scale of the expansion of the PEPP envelope to

further boost monetary policy accommodation at the current meeting."

     In the end, members agreed that not acting would cause further tightening

of financial conditions, to the detriment of the economy.

     "At the same time," the account adds, the [expanded] envelope should be

understood as a ceiling, which implied that in the event of significant upside

surprises to the outlook, the full envelope would not need to be used."

     In an apparent rejoinder to the German Constitution Court, which ruled in

May that the 'proportionality' of the PSPP had not been proven, the account

June's meeting offers a broad-based discussion of the rationale behind the ECB's

use of asset purchases in pursuit of its inflation target coupled with a lengthy

assessment of the programme's effectiveness. There was, the account records,

"ample evidence from an exhaustive literature showing that asset purchase

programmes in general and the PSPP in particular had proven effective in

achieving their intended effects on the euro area economy and thereby in

maintaining price stability."

     "In terms of the overall monetary policy strategy, purchases of government

bonds under the PEPP and the APP were an effective tool for delivering on the

Treaty-assigned price stability objective in the current environment," chief

economist Philip Lane is summarised as arguing.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,M$$EC$]