ECB’s Villeroy: Should Keep as Much PEPP Flexibility as Possible

22 November, 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank should preserve as much as possible of the flexibility of its pandemic emergency purchase programme (PEPP) after the PEPP ends in March, Governing Council member François Villeroy de Galhau said Monday.

In an interview with German business daily Börsenzeitung, Villeroy, who heads Banque de France, suggested as a relatively easy option the possibility of establishing a total volume of purchases rather than pre-defining the monthly amount of assets to be bought, with other aspects of the PEPP’s flexibility potentially to be part of the ECB’s ‘virtual toolkit’.

‘Flexibility is at least as important as volumes’, he was quoted as saying. As for an increase in the asset purchase programme’s (APP) monthly purchases of 20 billion euros, this is ‘at the present moment a possibility, but not yet a necessity’, he said.

According to the newspaper, Villeroy suggested that flexibility in terms of asset classes and jurisdictions was not relevant with respect to the APP. ‘But it is worth thinking about how we can keep such elements of flexibility in other forms in the future as part of our virtual toolkit’, he said.

Monetary authorities, he said, ‘have to be patient and vigilant at the same time’ in view of unexpectedly persistent but transitory high inflation. ‘We mustn’t overreact and tighten monetary policy prematurely.‘ However, he added, ‘if the situation changes, we should not hesitate to act.’

The newspaper quoted Villeroy as saying that about the ‘general orientation of our monetary policy’ there is ‘a broad consensus in the ECB Governing Council.’

‘First: we have to exit our tried and tested crisis instruments’, including the PEPP and the targeted longer-term refinancing operations (TLTROs), he said. ‘After that, in a second step we will start gradually adapting our monetary policy accommodation.’

The ECB would then decide about the APP and interest rates, he said.

Villeroy rejected Council member Robert Holzmann’s call to stop all asset purchases relatively soon.