Eurozone | ECB will act to preserve favorable financing conditions

The ECB will ramp up its monthly asset purchases under the PEPP over the coming quarter using the QE program’s existing flexibility. The decision came despite a modest upgrade to the ECB’s macroeconomic outlook, as spillovers from rising US bond yields risked undermining eurozone financing conditions at an early and fragile stage of the recovery.

What you will learn from this report:

  • The forecast revision and the signalled pick-up in the QE pace were in line with our assumptions. This may entail an increase of monthly PEPP purchases from €60bn to about €80bn until the recovery is more entrenched.
  • The ECB retains a certain level of constructive ambiguity about what constitutes “favourable financing conditions” not least because there appear to be differing views within the governing council.
  • This means the aim of the intervention and the required pace of asset purchases is muddied. We continue to interpret their approach as a soft cap on real government bond yields.

Topics: Europe, Eurozone, ECB, Monetary policy, Macro, Financial conditions

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