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​MNI ECB Preview - Sep 2021: Tweaking The Pace, Postponing Duration

The ECB is expected to reduce the PEPP pace at the September meeting, while deferring a decision on the future of PEPP to December

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Executive Summary:

  • Easing financial conditions since the July GC meeting, coupled with an improvement in economic conditions and an acceleration in inflation, suggest that the ECB is likely to announce a reduction in the PEPP purchase rate this week.
  • A more fundamental decision on the future of PEPP is likely to be postponed until December, given that the Governing Council will require greater conviction that the Covid crisis is over before considering wrapping up the emergency support measures.

For the full publication please see:

ECB Preview September 2021.pdf

Baseline Scenario: The ECB announces a modest reduction in the PEPP pace for Q4 and stresses that this is a technical implementation decision and not a taper signal. Growth and inflation forecasts are revised higher to reflect the recent data improvements, but the medium-term inflation projection remains below target.

Dovish Scenario: The ECB maintains the "significantly higher" purchase pace and reiterates the flexibility of PEPP (suggesting a potential duration and size upgrade beyond March).

Hawkish Scenario: The PEPP purchase rate is reduced and the ECB indicates that discussions have started to take place on concluding PEPP and the post-PEPP policy landscape. Growth and inflation forecasts are revised higher, with the medium-term inflation projection now much closer to target.