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MNI STATE OF PLAY: ECB Slows PEPP; Big Decisions In December

The European Central Bank announced a "moderately lower" pace of bond buying under its pandemic emergency purchase programme on Thursday, with President Christine Lagarde indicating that a decision on what will follow PEPP could be announced in December.

The Governing Council's unanimous decision to trim PEPP's current purchase pace of around EUR80 billion per month was described by president Christine Lagarde as a recalibration, not a taper, with financing conditions remaining favourable and the outlook for Europe's economy broadly balanced. The move was determined in line with a specified framework, she said.

A 2.2% rebound in Q2 GDP saw the recovery beat expectations, Lagarde said, with strong growth anticipated in the third quarter of 2021. September's Eurosystem staff economic projections saw annual real GDP growth improving to 5.0% in 2021, while remaining broadly unchanged at 4.6% in 2022 and 2.1% in 2023.

Average euro area inflation increased to 3.0% in August, and is expected to rise further before "largely" fading out into 2022. However underlying inflation pressures have edged up, Lagarde added, with rising prices being felt by consumers.

Annual HICP headline inflation was revised upwards and is projected to reach 2.2% in 2021, 1.7% in 2022 and 1.5% in 2023. Core inflation is likely to beat June's projections to average 1.3% in 2021 and 1.4%, but remaining below the ECB's 2% target at 1.5% in 2023.

Governing Council members have yet to discuss what policy actions to put in place if, as anticipated, PEPP ends in March next year, or the possible implications for monetary policy of a change of government in Germany, Lagarde said.

However December would be an appropriate moment to conduct an "overall re-examination" of the current policy stance, including the capital key which puts limits on the ECB's pre-Covid asset purchase programme, as well as the status of targeted longer-term refinancing operations (TLTROs), she told an online press conference.

MNI London Bureau | +44 20 3983 7894 | luke.heighton@marketnews.com
MNI London Bureau | +44 20 3983 7894 | luke.heighton@marketnews.com

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