ECB’s de Guindos Says ECB ‘Always Open to Recalibrating’ PEPP

14 June 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank is in principle always willing to make further adjustments to its pandemic emergency purchase programme (PEPP), ECB Vice President Luis de Guindos said Sunday.

In an interview with Spanish national daily ABC, de Guindos suggested that ECB measures depended on inflation expectations and financial conditions, according to a text provided by the ECB.

Noting that the ECB on June 4 increased the size of the PEPP from the €750 billion when the program was announced on March 18 to €1.35 trillion, de Guindos called this an ‘enormous purchase volume’, especially given the pre-existing Asset Purchase Programme (APP).

‘With all of this, our purchases would come to €1,700 billion, which is a huge amount’, he said. ‘And, depending on economic conditions and our inflation projections, we are always open to recalibrating the programme.’

The ECB weighs such steps in the light of inflation expectations, ‘which are now lower than before the pandemic’, and financing conditions, he said. ‘We try to prevent a tightening of financial conditions because that would have a severe impact on credit and sovereign bonds and could lead to fragmentation in the euro area.’

De Guindos observed that staff projections of HICP call for inflation of 1.3% in 2022, ‘still a long way’ from the ECB’s medium-term target of below but close to 2%, so that ‘our stimulus measures are necessary’.

By preventing sovereign debt markets from fragmenting and financing conditions from tightening, the ECB’s debt purchases keep the health and economic crises from morphing into a debt crisis, he said.

With respect to economic developments, de Guindos affirmed that ‘[w]e saw the worst of the situation around the middle of April.’

A consensus on an EU recovery plan would be reached at the end of next month, he predicted, adding that ‘[a] strong European response is essential to ensure that every country is included in the recovery.’