• What ECB will do about Tapering QE?

    1 Sep 2021 | Economic News
  

What ECB will do about Tapering QE?

 

In a recent report from Nomura's Chiara Zingarelli, she laid out a blueprint for what the ECB's PEPP easing could look like.

 

Specifically, she said that September’s ECB meeting will see it making a decision on the pace of its PEPP purchases for Q4 2021. While the ECB is likely to discuss the future of its asset purchase programmes (APP and PEPP) in September, she believes it is only likely to make a firm decision at the end of the year – once the evolution of the pandemic becomes clearer and European countries’ fiscal plans for 2022 have been published.

 

Below Nomura provides the key points of our ECB view ahead of the September meeting:

 

1. We expect the ECB to move from “a significantly higher pace” in PEPP purchases to flexible purchases in Q4 2021. We think the ECB will slow its Q4 PEPP purchases, but only modestly, from €20bn per week to something closer to the average of net purchases conducted so far in 2021 (€16.6bn per week).

 

2 .We expect the ECB to use its PEPP envelope in full — on our expectations, it should be exhausted by the first week of April 2022 — and end the programme thereafter. We don’t think the ECB will expand its PEPP.

 

3. In our view, the ECB will increase the pace of its APP purchases from €20bn per month to €40bn per month in December 2021. We expect it to implement higher purchases from the start of Q2 2022, when the PEPP will come to an end.

In order to stabilize markets as PEPP comes to an end, we think the ECB will announce in December an additional €140bn temporary APP envelope, to be used flexibly over time and depending on market conditions, from the start of April until end-2022.


 

As Nomura concludes, "the way in which the ECB adjusts its purchases next year will be relevant for markets to the extent that any increase in the APP may be perceived as a longer-lasting form of monetary stimulus than an expansion of PEPP. While the ECB’s asset purchases will likely decline next year, once the PEPP comes to an end, the good news for markets is that higher APP purchases are here to stay. We expect APP purchases to run at a higher pace at least until the end of 2023."

 

Reference: NXTMINE

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