ECB’s Holzmann: PEPP to be Revisited in Autumn and End in March if Pandemic Allows
14 June 2021
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Robert Holzmann on Monday suggested that the pandemic emergency purchase programme (PEPP) would end as scheduled next March and that the decision about the transition away from the PEPP would be made in the fall.
In an interview with Bloomberg, Holzmann, who heads the Austrian National Bank, said that ‘it’s too early to talk about tapering, but … PEPP was established and voted for to end by March 2022, and for the time being, if and as nothing changes in the sense that there is not a forced, a fixed confinement, it will end’.
‘The question is when how to say a tapering, or phasing out, or I prefer transitioning, to the normal, non-pandemic programme takes place’, he said. ‘This is something which will be decided in autumn, and I think it’s justified to wait, because yes, we’re all optimistic now, and we all hope that with the summer the upswing is fully going on and continuing later in autumn.’
However, the pandemic is not over, in particular in developing countries, creating a lot of uncertainty, ‘which we have to take into account if and when we make decisions’, he said.
Holzmann reminded that the PEPP was created to address weak demand in the aftermath of the outbreak of the pandemic, but that ‘demand is increasing now and inflation is moving up’. The people of Austria and the rest of Europe are ‘very concerned that inflation is going up and is going to stay’, he said.
Inflation is ‘the big unknown’, he said. Demand could increase further, which alone would not lead to more inflation, but ‘we don’t know the underlying mechanism, the underlying dynamics, because higher prices will at one moment lead to higher wages, at least in some parts’, he said.
‘For this reason, vigilance, vigilance, vigilance, and to stand ready to take action if and when it is necessary’, he said.
Should the outcome of the ECB’s strategic review include a more clearly symmetrical price stability objective, ‘this means that we will be able to tolerate for some time levels higher than we had in the past, and well above 2%’, he said. Readings of above 3% would not make monetary authorities ‘nervous’, he said.
Asked whether the ECB might take advantage of less active financial markets in the summer to slow down the pace of asset purchases, Holzmann said this was ‘not something that’s tweaking, it’s simply following what the market proposes, what it offers … so it’s not tweaking, it’s adjustment.’
Holzmann described Governing Council meeting deliberations as ‘collegial, animated, and we share our thoughts very freely, but then we try to come up with something which is supported by everybody, even if some of us would have liked to go in a different direction.’
ECB President Christine Lagarde was thus correct last Thursday when she called the communique unanimous but the preceding discussion not, he said.