(Teleborsa) – The decision of the European Central Bank (ECB) to reduce the pace of purchases of the PEPP program (Pandemic Emergency Purchase Program) had been widely announced by officials of the Frankfurt institution in recent weeks, and in fact yesterday the market was not moved by the announcements of the ECB. For most analysts, the words of the president of the European Central Bank Christine Lagarde were not particularly significant, and we will have to wait a few more months to know the true intentions of the euro area central bankers.
“Those who thought the ECB would surprise the market with a hawkish announcement (as some hawks on the Governing Council have raised their voices) will probably have to wait a few more months to hear how it intends to exit the PEPP and “fix” the APP program without shaking the market too much“, Noted Annalisa Piazza, Fixed Income Research Analyst at MFS IM. “APP purchases are currently 20 billion euros per month, and we suspect that – going forward – they could rise to around 40 billion euros from the second quarter of next year, as gross supply is still high in all major economies of the ‘EMU will have to be partially absorbed to avoid an unjustified taper tantrum (which would undermine the transmission of past political accommodation, growth and inflation), ”he added.
“The decision suggests that the weekly purchase in the PEPP program will drop from the current average of € 18 billion per week, but will remain above the first quarter average of € 15 billion – commented Martin Wolburg, Senior Economist at Generali. Investments – As bond supply tends to decline in the fourth quarter, we interpret the decision simply as a signal that the change in monetary policy has begun, but that it will be conducted with great caution“.
“Barring a sudden shock to the inflation and growth outlook, we expect a further reduction of the PEPP program in the first quarter of 2022 and its disappearance in the second quarter – said Reto Cueni, Chief Economist of Vontobel – In addition, we expect the ECB to compensate for the expiration of the PEPP with an increase in purchases in the traditional APP program (or a new one). We expect this to translate into ECB asset purchases of around 30-40 billion per month by mid-2022 ″.
“Leaving aside the news on asset purchases there has probably been a more significant shift in the characterization of the recovery and risks in the introductory speech,” said Andrew Mulliner, Head of Global Aggregate at Janus Henderson Investors. It has been a while since the ECB had talked about potential upside risks to inflation, however, the statements explicitly referred to persistent price pressures as an upside risk and staff forecasts were revised upward across the board. While the ECB expects the current above-target inflation rates to be transient and expects inflation of 1.5% for core and headline inflation in 2023 (still well below their new target of the 2%), for once the council hawks seem to gain greater influence in calculating risks ”.