ECB’s Lane Reassures That Eurotower Finally Stepping Up

23 March 2021

By David Barwick – FRANKFURT (Econostream) – Having been seen as slow to deliver on its March 11 promise to conduct asset purchases over the coming quarter ‘at a significantly higher pace than during the first months of this year’, the European Central Bank wants to drive home the message of new and more impressive data via an interview with Chief Economist Philip Lane.

Numbers released Monday indicated a net €21.1 billion worth of pandemic emergency purchase programme (PEPP) purchases in the week up to March 17, with redemptions published today revealing gross purchases in the amount of €21.9 billion.

Given gross purchases had been just €16.9 billion last week, €18.3 billion the week of the monetary policy meeting and €19.6 billion the week before that, it was clearly time to make good on the decision to pick up the pace.

Lest there be any doubt that it would follow through, ECB observers have now been reassured that the numbers ‘reflect our commitment to have a substantial increase in the pace of purchasing’, as Lane told CNBC, and ‘if you average over several weeks you will see the substantial increase in a consistent way.’

That a central bank - whose effectiveness hinges on its credibility - intends to live up to a commitment should not be news, and Lane was careful not to promise anything more than that. Indeed, he seemed at pains to underscore that the accelerated purchase pace is not all that immutable.

‘And in the end, it’s for us to determine, as we did in the March decision, based on the joint assessment of what's going on in terms of financing conditions, and also what we see in terms of the inflation outlook – that will determine how much we react in terms of the scale of asset purchasing’, he said. Meaning that how much larger the purchases will be – or what constitutes ‘substantial’ at a given moment – will be state-dependent.

Perhaps Lane – who Econostream understands pushed for a commitment to monthly purchase volumes at the top end of a €60-€80 billion range before being pulled slightly back by the Council as a whole – had in mind that despite the unanimity with which the entire Council ultimately agreed, opposing views persist.

In an interview last Friday with Econostream, Lithuanian Council member Vitas Vasiliauskas said that ‘[f]or the moment we see this as a temporary measure, but everything will depend on the situation’, while his Austrian colleague Robert Holzmann today also said purchases would depend on conditions and added that the entire programme was planned to end in March of next year.

Lane however was asked specifically about Dutch Council member Klaas Knot, who had indicated on Monday that improvements in growth and inflation in the second half of 2021 would make the current ‘bit of frontloading’ of PEPP purchases unnecessary.

Lane strove to bridge the gap, categorising it as ‘our shared view’ that ‘essentially it depends on the pandemic’, so that calls to keep the increased rate of PEPP purchases temporary simply reflect ‘a conjecture about one pathway’.

‘But the more overriding theme, I think, is with uncertainty about the pandemic, the PEPP will adjust in a flexible way to make sure that financing conditions remain favourable and, in particular, that they've remained supportive of countering the pandemic shock to inflation’, he said.

On another topic, Lane declined to be drawn out about the possibility the ECB would allow a period of inflation overshooting, calling this ‘an interesting debate’ and observing that the ECB was ‘still in the middle’ of its strategy review.

The bigger point is that with central banks worldwide undershooting their inflation target, he said, ‘the universal emphasis and our emphasis has to be to make sure that monetary policy support remains in place until inflation is robustly where we want it to be.’

Only last week, Lane had been more forthcoming on the same subject, affirming ‘a very strong logic’ to signalling that the correction after a period of under-target inflation would involve ‘going moderately above the target for a period.’ Inflation of 2% has not ‘necessarily been seen as a ceiling’, given ‘plenty of overshooting periods in the past’, he said at the time.