ECB’s Vasle: Decided to Accelerate Asset Buys With PEPP Envelope Unchanged

12 March 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s decision yesterday to accelerate the rate of asset purchases to counter risen yields was made with the envelope of the pandemic asset purchase programme (PEPP) unchanged, Governing Council member Boštjan Vasle said Friday.

In a statement issued in his name by the Bank of Slovenia, which he heads, Vasle said that with price pressures to remain weak in spite of the recovery, Council members deemed it ‘crucial to ensure through a highly supportive monetary policy favourable financing conditions in both the banking and non-bank sectors and in Eurosystem countries.’

The Slovenian-language statement would be supplemented by an English version once completed, the Bank of Slovenia said.

According to Vasle, the decision taken by the Council was to significantly pick up the pace of purchases made over the coming quarter under the PEPP ‘with the entire program envelope unchanged.’

ECB President Christine Lagarde, asked yesterday if any member of the Council had expressed a desire to increase the envelope, avoided an unambiguous answer. However, it was not clear today whether Vasle meant to imply that the decision to leave the PEPP envelope unchanged had been the outcome of deliberations that included consideration of an alternative proposal.

Although consumption will decline further in the coming months, this will be offset by developments in the second half, when pandemic containment measures are lifted, he said. Higher foreign demand will help euro area growth reach 4% this year, he said.

‘Despite the recovery, the economy will continue to operate at untapped capacity, which will stifle inflationary pressures’, he said. Projected inflation this year of 1.5% is due mainly to energy prices and ‘not the result of favourable domestic macroeconomic conditions’, he said.

‘When these one-off effects cease, inflation will fall again, but with economic recovery in the coming years, inflationary pressures will nevertheless increase slightly’, he said.

Despite the rise over the year to date of nominal long-term yields, ‘borrowing costs remain at very low levels, even in the segment of riskier instruments’, he said. ‘It is crucial for successfully overcoming the difficult economic situation that financing conditions remain favourable along the entire monetary policy transmission chain, from risk-free investments to lending conditions for the non-banking sector and for all sectors of the real economy, from the banking system to businesses and households. We monitor this with a holistic and multi-faceted approach.’