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ABN Amro tror, at ECB vil fortsætte sit PEPP-program næste år

Hugo Gaarden

onsdag 23. september 2020 kl. 10:00

Der har rejst sig tvivl om, hvorvidt ECB vil fortsætte sit opkøbsprogram PEPP under coronakrisen. Har det den rigtige effekt? ABN Amro tror, at programmet er nødvendigt for at redde stumperne efter krisen, og at ECB vil pumpe yderligere 500 milliarder euro ud i økonomien inden årets udgang, og at programmet vil fortsætte næste år, fordi en normalisering af økonomien vil tage lang tid.

Uddrag fra ABN Amro:

Global Daily – What are the implications of the ECB’s QE review?

ECB View: QE looks set to last for the foreseeable future and PEPP should continue do the heavy lifting –

Over the weekend, the Financial Times newspaper ran a story claiming that the ECB had launched a review of its asset purchase programmes. Although not confirmed by the central bank, the FT explains that it had received the information from two Governing Council members and the story seems credible to us.

Ostensibly the ECB is reviewing the impact of the PEPP and how long it should continue. However, an assessment is also taking place on whether some of the flexibility currently built into the PEPP should be applied  to the APP.

The PEPP is not limited by issue(r) limits with regards to the amounts of sovereign bonds that can be purchased. In addition, it is more flexible in deviations from the capital key in its sovereign bond purchases. Finally, the ECB can purchase Greek government bonds and treasury bills with a residual maturity of at least 70 days under the PEPP, but not the APP. Hence the areas of difference mainly impact the public sector programme.

A couple of questions arise.

First of all, why is the ECB conducting the review at this time? The PEPP was launched around six months ago as a temporary emergency measure and it seems reasonable to  ask whether we remain in emergency conditions and how long is ‘temporary’.

An additional factor is the inflation outlook. Despite the stimulus that has been announced so far, the ECB’s economists project HICP inflation at just 1.3% in 2022. Chief Economist Philip Lane noted recently (see here) that ‘inflation remains far below the aim and there has been only partial progress in combating the negative impact of the pandemic on projected inflation dynamics.

Moreover, the outlook remains subject to high uncertainty and the balance of risks continues to be tilted to the downside’. Against this background, it looks to us that asset purchases will need to continue as far as the eye can see and it therefore becomes necessary to think about how they will arrange the programmes to put the necessary stimulus in place.

Indeed, the PEPP’s focus has already shifted from specifically targeting financial conditions to  more explicitly attempting to move inflation back to its pre-pandemic trajectory.

Second, what will the outcome of the review be? It was suggested in the FT article that some of the hawkish members would be more comfortable with ending the PEPP in the coming months and continuing asset purchases under an APP, which would also become more flexible.

We are sceptical about this. Indeed, net asset purchases under PEPP already run until mid-2021. We think hawkish members would be more comfortable in continuing purchases under the PEPP because it is seen as temporary, and would be more concerned by the idea of the APP permanently taking up the more flexible features of the PEPP. In addition, the APP could come under severe legal challenges if it permanently drops issue(r) limits as well as the capital key.

To us it makes sense to allow the PEPP to do the heavy lifting in terms of monetary stimulus as long as possible. This can easily be justified because the economic shock from Covid-19 will take years to recover from both in terms of economic growth and in terms of inflation.

So the PEPP could still be seen as picking up the pieces from the pandemic even if it were to last through 2021. Finally, without changes – especially to increase issue(r) limits – the APP would struggle to mop up large amounts of the public sector supply that is on the cards for coming years.

Overall, we continue to expect a further step up in the PEPP by the end of the year (EUR 500bn in December), while the programme’s duration will eventually encompass the whole of next year. The APP could then take over as the key stimulus programme in 2022, once the PEPP has done the bulk of the work.

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