Today´s ECB meeting went pretty much according to expectations. There were no new policy measures, only confirmation of earlier measures. The strategic review was, however, confirmed to have been postponed to the end of next year. The main piece of news had to do with the slightly smaller PEPP purchases during summer. Lagarde confirmed it is not a summer slowdown, but a reflection of a policy choice. The ECB merely uses the flexibility of the purchase program, after a heavy frontload, as a result of less market fragmentation. Markets are calmer and spreads have declined, but the worry about market fragmentation has not disappeared.
The baseline is still that the full PEPP will be used even if some Governing Council members have questioned it, but if a more positive scenario materialized the programme is flexible. Based on today´s comments it however looks plausible that we will have to get used to slightly smaller purchases going forward. Even if the capital key continues to be the baseline for the purchases, deviations will be present also going forward in order to make sure the purchases do what they are intended to do; reduce market fragmentation and continue to ease the monetary policy stance.
Christine Lagarde, as expected, continued to assure that the ECB is ready to do everything needed but also underlined the need for fiscal support ahead of the EU meeting tomorrow. She had the good judgement of staying away from concrete advice but showed great confidence in the recovery fund.Swedbank Research
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