ECB Brief: Lagarde Suggests June Council Meeting May Be No Inflection Point

21 May 2021

By David Barwick – FRANKFURT (Econostream) – The June policy meeting of the European Central Bank’s Governing Council appears somewhat less likely to become an inflection point with respect to the degree of monetary accommodation, based on comments Friday by ECB President Christine Lagarde.

At a press conference during the Informal Ecofin, Lagarde was asked whether, against the backdrop of accelerated vaccination campaigns and economic reopening, there was any chance the ECB would have to consider tapering pandemic emergency purchase programme (PEPP) purchases in June.

The ECB was ‘very closely monitoring’ increased yields, Lagarde prefaced her response, but the fate of the PEPP hinged on the assessment of financing conditions and inflation prospects to be made on the basis of updated macroeconomic projections.

The ECB’s commitment to favourable financing conditions is valid ‘throughout the whole pandemic period, and that will guide our management of the pandemic emergency purchase programme’, she said. The pandemic period from a monetary policy point of view meant ‘until at least March 2022’, she suggested.

Without directly commenting on the possibility of tapering, Lagarde appeared to want to reject no less firmly than she had at the press conference on April 22 the notion that this was something the ECB was now ready to contemplate.

On April 22, she was also clearly unwilling to entertain thoughts of tapering and denied that the Council had considered the subject, but seemed less categorical about the possibility that it would eventually reach the ECB’s agenda, calling it merely ‘simply premature’ for April.

Today, a month later and hours after new and very strong PMI readings offered the latest confirmation of a European economy well on the mend, Lagarde was if anything yet more energetic in her dismissal, calling it ‘far too early and … actually unnecessary to debate longer-term issues.’

‘Our focus in June is going to be on favourable financing conditions offered to the economy at large and to all sectors in the context of the inflation outlook’, she said, appearing to indicate that the focus would thus not be on tapering.

She made no mention of the possibility of not exhausting the PEPP envelope and gave no hint that she saw conditions that might warrant a slower pace of purchases. Indeed, she was at pains to play down the most recent economic improvement, referring to ‘quite a lot of factors and development that we are seeing at the moment that were actually already included in our previous projection from last March.’

Policymakers had to ‘provide the right bridge across the pandemic well into the recovery’, she said. ‘And that’s what we will do. This will be the focus.’

With almost three weeks left until the Governing Council convenes again to discuss policy, despite Lagarde’s comments it would probably also be premature to exclude the possibility that the ECB will grapple with tapering after all. But her vigorous reaction to the very question opens the door to a scenario in which the Council yet again sidesteps the issue.