MNI BRIEF: EZ Bank Chiefs Split On PEPP Boost: ECB Account

The European Central Bank faced push-back from some Governing Council members over a proposed EUR 500bn increase to the pandemic emergency purchase program, the account of December's meeting shows, with some national bank governors favouring a more moderate increase, while others advocated a bigger boost.

Some GC members concurred that an "important shift" in the implementation of PEPP should be announced, making clear that if favourable financing conditions could be maintained with asset purchase flows that did not exhaust the PEPP envelope, the envelope need not be used in full -- stressing also the important role played by the reinvestment of principal payments for monetary policy.

Views differed on how favourable financing conditions should be assessed, with a majority feeling that they should be considered holistically and in relation to the inflation outlook. The current level also predicated on expectations of further monetary policy easing, it was noted, with some potential fragility in the transmission of monetary policy via banks observed and a "sharp deterioration" in access to both bank loans and credit lines expected over the next six months.

Recent appreciation in the exchange rate could contribute "significantly" to the subdued inflation outlook, some members said, while others sought to emphasise the impact of the nature and persistence of the shock caused by the pandemic as a key driver in the exchange rate movement.