The ECB meeting came largely in line with expectations. While leaving the policy rates unchanged, the members confirmed that the PEPP program would end in March 2022. Meanwhile, they have extended the reinvestment process and topped up the APP program, as means to continuously provide liquidity to the market. The staff economic projections saw sharp upgrades in inflation outlook over the years ahead.
On the monetary policy, policymakers announced to lower the pace of asset purchases via the PEPP over coming months so that it would end in March 2022, as scheduled. As noted in the statement, the Council “judges that the progress on economic recovery and towards its medium-term inflation target permits a step-by-step reduction in the pace of its asset purchases over the coming quarters”. Despite the reduction, it assured that “monetary accommodation is still needed for inflation to stabilise at the 2% inflation target over the medium term”. Besides extending the reinvestment horizon for the PEPP to at least the end of 2024, the ECB will also increase the pace of monthly purchases under APP to 40B euro in 2Q22 and 30B euro in 3Q21, from 20B euro currently. Purchases from 4Q22 onwards would then return to 20B euro for as long as necessary to reinforce the accommodative impact of its policy rates.
On economic projection, ECB upgraded its inflaton forecasts for the entire projection horizon. Headline CPI is expected to reach +3.2% y/y in 2022, before accelerating further to +4.8% in 2023. These are revised higher from +1.7% and +1.5%, respectively in September’s projectors. GDP growth forecasts are upgraded slightly higher to +5.1% y/y this year (Sep: +5%) but downgraded to +4.2% in 2022 (Sep: +4.6%). The economy is expected to slow further to +2.9% and +1.6% in 2023 and 2024 respectively.
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