At their meeting today, the European monetary authorities decided to increase the Pandemic Emergency Purchase Programme (PEPP) by 600 billion euros to 1,350 billion euros. In terms of volume, this decision was probably not supported by all Council representatives. It was also decided to continue the bond purchases not only until the end of the year, but at least until June 2021. In order to maintain the current momentum of bond purchases until then, the central bank’s top executives would even have to increase the purchase volume again. It should also be emphasized that the central bank intends to reinvest the liquidity from securities maturing in the PEPP at least until the end of 2022. With that, the monetary policy stimulus will again be significantly stretched over time. In addition, the flexibility of the PEPP allows the ECB to deviate from the capital key for a longer period of time. Speculation that the ECB could break away from the PEPP entirely has not been confirmed. The central bank’s package of measures has exceeded the expectations of market players. Among other things, this is reflected in a noticeable decline in risk premiums for peripheral bonds.
In the course of the press conference, ECB President Lagarde presented the revised projections for economic and inflationary developments. In their main scenario the central bank representatives now assume that European economic output will shrink by 8.7% in the current year. According to the ECB, a gradual recovery should begin in the third quarter. The economic rebound will then also be reflected in the upward revision of GDP projections for 2021 and 2022. At the same time, however, ECB President Lagarde emphasised that the economic outlook is currently subject to a high degree of uncertainty. As far as inflation is concerned, the monetary authorities expect price pressures to remain extremely weak for some time to come. Ultimately, this was one of the motives for the central bank heads to further expand the monetary policy stimulus.
In the course of the press conference, the ruling of the Federal Constitutional Court was discussed several times. Here, Ms Lagarde emphasised that the ECB is subject to the jurisdiction of the European Court of Justice. However, she was confident that „… a good solution will be found“.