Choose Language
September 9, 2021
NewsThe ECB recalibrates its pandemic emergency purchase program
In light of financing conditions and the inflation outlook, the ECB decides to moderately lower the pace of net asset purchases under the pandemic emergency purchase program (PEPP) from the monthly pace of EUR 80 billion registered in the past two quarters.
On Thursday, the ECB Governing Council kept the interest rate on the main refinancing operations and on the marginal lending facility unchanged at respectively, 0.00% and 0.25%. The deposit rate was kept also unchanged at -0.50%.
Based on a joint assessment of financing conditions and the inflation outlook, the ECB judged that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.
The PEPP is a non-standard monetary policy measure initiated in March 2020 to counter the serious risks posed by the coronavirus outbreak. It is essentially an envelope that sets aside EUR 1.85 trillion for purchasing private and public sector securities. It is subject to different limitations that the ECB’s standard Asset Purchase Program (APP).
Back in March 2021, the central bank decided to “significantly” increase the pace of PEPP purchases because of the threat of premature tightening of financing conditions due to higher market rates. So far, it seems that the PEPP has proven effective. The European Parliament recently stated: “From the point of view of removing financial fragmentation and taming sovereign stress in the euro area from the pandemic, the PEPP has been successful. Moreover, this outcome was obtained without fully using its potential resources”.
On the APP, net purchases will continue at a monthly pace of EUR 20 billion. It will end shortly before the ECB starts raising rates.
The Chair, Christine Lagarde stressed during the press conference that the decision did not constitute tapering, it was rather a recalibration of the PEPP and she maintained the mandatory disclaimer about the Delta strain, albeit adding that high vaccination rates (70% of EU adults) so far prevented fresh economic restrictions.
The new staff forecasts showed a stronger near-term outlook for prices and growth. The ECB predicts inflation will rise above its 2% target to 2.2% this year, before falling back to 1.7% in 2022 and 1.5% in 2023. This year’s GDP growth forecast was upgraded from 4.6% to 5% while those for 2022 and 2023 were largely unchanged at 4.6% (from 4.7%) and 2.1%, respectively.
After the announcement, European yield curves bull flattened with German 10year yields going lower. Spreads over 10y peripheral bonds tightened.
In contrast to the ECB’s ‘recalibration’, the US Federal Reserve and the Bank of England have said they plan to taper their asset purchases this year. Central banks in Canada, New Zealand and Australia have commenced.
Disclaimer
All financial data and/or economic information released by this Publication (the “Publication”); (the “Data” or the “Financial data
and/or economic information”), are provided for information purposes only,
without warranty of any kind, including without limitation the warranties of merchantability, fitness for a particular
purpose or warranties and non-infringement of any patent, intellectual property or proprietary rights of any party, and
are not intended for trading purposes. Banque Internationale à Luxembourg SA (the “Bank”) does not guarantee expressly or
impliedly, the sequence, accuracy, adequacy, legality, completeness, reliability, usefulness or timeless of any Data.
All Financial data and/or economic information provided may be delayed or may contain errors or be incomplete.
This disclaimer applies to both isolated and aggregate uses of the Data. All Data is provided on an “as is” basis. None of
the Financial data and/or economic information contained on this Publication constitutes a solicitation, offer, opinion, or
recommendation, a guarantee of results, nor a solicitation by the Bank of an offer to buy or sell any security, products and
services mentioned into it or to make investments. Moreover, none of the Financial data and/or economic information contained on
this Publication provides legal, tax accounting, financial or investment advice or services regarding the profitability or
suitability of any security or investment. This Publication has not been prepared with the aim to take an investor’s particular investment objectives,
financial position or needs into account. It is up to the investor himself to consider whether the Data contained herein this
Publication is appropriate to his needs, financial position and objectives or to seek professional independent advice before making
an investment decision based upon the Data. No investment decision whatsoever may result from solely reading this document. In order
to read and understand the Financial data and/or economic information included in this document, you will need to have knowledge and
experience of financial markets. If this is not the case, please contact your relationship manager. This Publication is prepared by
the Bank and is based on data available to the public and upon information from sources believed to be reliable and accurate, taken from
stock exchanges and third parties. The Bank, including its parent,- subsidiary or affiliate entities, agents, directors, officers,
employees, representatives or suppliers, shall not, directly or indirectly, be liable, in any way, for any: inaccuracies or errors
in or omissions from the Financial data and/or economic information, including but not limited to financial data regardless of the
cause of such or for any investment decision made, action taken, or action not taken of whatever nature in reliance upon any Data
provided herein, nor for any loss or damage, direct or indirect, special or consequential, arising from any use of this Publication
or of its content. This Publication is only valid at the moment of its editing, unless otherwise specified. All Financial data and/or
economic information contained herein can also quickly become out-of- date. All Data is subject to change without notice and may not be
incorporated in any new version of this Publication. The Bank has no obligation to update this Publication upon the availability of new data,
the occurrence of new events and/or other evolutions. Before making an investment decision, the investor must read carefully the terms and
conditions of the documentation relating to the specific products or services. Past performance is no guarantee of future performance.
Products or services described in this Publication may not be available in all countries and may be subject to restrictions in some persons
or in some countries. No part of this Publication may be reproduced, distributed, modified, linked to or used for any public or commercial
purpose without the prior written consent of the Bank. In any case, all Financial data and/or economic information provided on this Publication
are not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be
contrary to law and/or regulation. If you have obtained this Publication from a source other than the Bank website, be aware that electronic
documentation can be altered subsequent to original distribution.
As economic conditions are subject to change, the information and opinions presented in this outlook are current only as of the date
indicated in the matrix or the publication date. This publication is based on data available to the public and upon information that is
considered as reliable. Even if particular attention has been paid to its content, no guarantee, warranty or representation is given to the
accuracy or completeness thereof. Banque Internationale à Luxembourg cannot be held liable or responsible with respect to the information
expressed herein. This document has been prepared only for information purposes and does not constitute an offer or invitation to make investments.
It is up to investors themselves to consider whether the information contained herein is appropriate to their needs and objectives or to seek advice
before making an investment decision based upon this information. Banque Internationale à Luxembourg accepts no liability whatsoever for any investment
decisions of whatever nature by the user of this publication, which are in any way based on this publication, nor for any loss or damage arising
from any use of this publication or its content. This publication, prepared by Banque Internationale à Luxembourg (BIL), may not be copied or
duplicated in any form whatsoever or redistributed without the prior written consent of BIL 69, route d’Esch ı L-2953 Luxembourg ı
RCS Luxembourg B-6307 ı Tel. +352 4590 6699 ı www.bil.com.
Read more
More
October 15, 2024
BILBoardBILBoard November 2024 – Beyond the U...
The race for the US Presidential election on November 5 is heating up, but business activity is essentially frozen given the uncertain outcome and...
October 11, 2024
Weekly InsightsWeekly Investment Insights
Hurricanes caused widespread damage last week. In the US, Florida residents rushed to evacuate ahead of Hurricane Milton, which followed closely on the heels...
October 4, 2024
Weekly InsightsWeekly Investment Insights
Comments from central bankers toyed with both currencies and rate markets over the past week. The Fed Chair Powell said that the US central...
September 30, 2024
Weekly InsightsWeekly Investment Insights
Autumn is in full swing and with the change of season came a turnabout announcement that was noticed in all corners of the market. Beijing’s...