Read on Twitter
Beyond the discussions about the recalibration (spoiler: “broad agreement” or something like that), here are four structural points that are more important for the future of monetary policy: https://twitter.com/ecb/status/1349697377603608576
1) worries about inflation and inflation expectations. It’s not new, but now that ECB projections are where they are, this worry is more tangible
2) further easing *currently* the monetary policy is not an option: yields (bund, deposit rate) are at their lower bound or so. Of course spreads can continue to tighten
3) as a consequence, we are no longer talking about the pandemic, but about the “extended pandemic period”. This is very important: the ECB will not stop its easing at the end of the pandemic, but at the end of the *extended pandemic period*
4) and like in October, the ECB insists that it has to rely on fiscal policy to ensure the effectiveness of its monetary.
My conclusion from that:
more will be needed (low inflation, low inflation expectations) but not in intensity (lower bounds): longer duration (for the “extended pandemic period”) with a more or less explicit support for more fiscal policy.
more will be needed (low inflation, low inflation expectations) but not in intensity (lower bounds): longer duration (for the “extended pandemic period”) with a more or less explicit support for more fiscal policy.
And so I expect longer period of favourable TLTRO and a longer PEPP (both until at least end 2022), no rate change. If worsening of the pandemic, then the same tools would be extended further. (End)
