Governing Council meeting, ECB 10/12/2020

Governing Council meeting, ECB. 10th December 2020

ECB boosts asset purchase programme by €500b.   

On 10^th December, the European Central Bank announced an expansion of its Pandemic Emergency Purchase Programme (PEPP). The amount of assets to be purchased will increase from €1,350b. to €1,850b. This is in addition to the asset purchase programme launched in late 2019, before the pandemic, which will continue at its current rate of €20b, along with further purchases under an additional scheme worth €120b. in total. These assets too will be reinvested until the ECB feels ready to raise interest rates.  

The PEPP will continue until at least March 2022, an extension of nine months. The earliest possible date to begin a run-off of these assets has also been pushed back to December 2023. Amongst other moves, the period over which considerably more favourable terms will apply for loans under TLTRO III, the third series of targeted longer-term refinancing operations, was extended to Jun 2022.   

These moves are a response to the deteriorating economic conditions in a number of member states thanks to the imposition of additional restrictions in response to increasing numbers of coronavirus cases. In addition, the strength of the Euro has contributed to no fewer than four consecutive months of deflation across the 19-nation bloc. Indeed, in Greece and Cyprus, prices have been falling for eight months now. However, with vaccines likely to bring the worst of the pandemic under control within a few months and money growth still at an elevated level, deflationary worries will soon disappear once the economy fully reopens. Indeed, thanks to the boost to the asset purchase programme announced today, the Eurozone may soon find itself facing excessive levels of inflation within two years.