MNI BRIEF: More PEPP Possible; FX Watched Closely: ECB Panetta

Monetary and fiscal policy must continue to reinforce one another by remaining expansionary until the euro area economy is on a "solid, durable recovery path," European Central Bank Executive Board member Fabio Panetta said in a speech Monday. The ECB's pandemic emergency purchase programme (PEPP) could also be increased if needed, he added, in comments coming just days after Governing Council members voted to increase it by EUR 500 bn.

Looking ahead, Panetta said the end of the pandemic "is now in sight," though 2021 "will likely be a "pandemic year", with high uncertainty and widespread vulnerabilities among firms and households. "For monetary policy, this means providing certainty about financing conditions well into the future," Panetta added.

Speaking after the Dec 10 meeting when the ECB recalibrated its policy tools, Panetta said the central bank stands ready to adjust all it's monetary policy instruments if downside risks to the outlook materialise, "including those stemming from exchange rate dynamics. Indeed, an appreciation of the euro could significantly affect euro area inflation."