Trial now

BoK Growth Forecast Could Be At Risk


The European Central Bank is likely to expand its EUR1.35 trillion Pandemic Emergency Purchase Programme to as much as EUR2 trillion at its meeting on Dec. 10 but officials are likely to stress that the increase in the PEPP envelope will only be used if necessary, ECB sources told MNI.

With the euro rising above USD1.21, the ECB will also repeat concerns about the currency's strength, they said

The increase in the PEPP's size, by at least EUR400-500 billion, will be matched by an extension in its duration by at least six months to the end of 2021, and perhaps by a whole year to mid-2022, the sources said, adding that it was unlikely that the pace of purchases would increase in the absence of any significant tightening of financial conditions.

But the ECB may say that it will only make use of all of the increase in the PEPP's envelope if necessary, the sources said. The ECB will boost cheap funding for banks via Targeted Longer-Term Refinancing Operations, whose duration might also be adjusted.


Depending on which other measures are approved, the ECB could extend pre-pandemic quantitative easing via its Asset Purchase Programme, but key interest rates, including the TLTRO rate, are likely to remain unchanged. The ECB could adjust collateral requirements for repo operations, as it continues to emphasise that monetary conditions will remain lower for longer.

New macroeconomic forecasts are likely to foresee a weaker fourth quarter than earlier envisaged, but following a better-than-expected third quarter, leaving September's projection for an 8% contraction this year little changed. Next year's growth expectation should be similar to September's estimate of 5%. The inflation outlook, already very weak at 0.3% for 2020 and 1% for 2021, could be marginally worse, and below target throughout the forecast period until 2023.

Nonetheless, there will be upside as well as downside risks next year, with the second half likely to be stronger than earlier anticipated due to the development of effective vaccines. After a difficult first quarter, the second quarter should be mixed, the sources said.

An ECB spokesman declined to comment on the matters in this article.

MNI London Bureau | +44 203-865-3829 |