The European monetary authorities agree that a substantial monetary stimulus is still needed. This is evident from the minutes of the Governing Council meeting of 9/10 September. While the latest economic data, in line with ECB projections, point to a strong recovery of economic activity, there are also significant downside risks. In this context, reference is made to the uncertainty about the further course of the corona pandemic and the increasingly likely no-deal brexit. The ECB will therefore adopt a wait-and-see stance for the time being and analyze further economic data very carefully.
At the same time, however, the central bank heads emphasize their fundamental readiness to act should this become necessary in view of the future inflation path. In this context, they also have their sights set on the further development of the euro’s external value. In principle, they are prepared to adjust all available monetary policy instruments. In the course of the discussions, it was again emphasized that the PEPP framework (1,350 billion euros) was expected to be fully utilized. However, the monthly purchasing speed could be reduced in order to create a buffer in the event of further distortions on the bond market. According to the ECB’s senior management, the PEPP is currently the most important instrument for steering monetary policy. However, an interest rate cut or an adjustment of the TLTRO conditions are still components of the ECB’s instrument box.
In the course of the September Council meeting, the ECB representatives discussed possible disruptive influences on the monetary policy transmission process. Among other things, it is feared that due to the continuing uncertainty about the further economic outlook, lending by the banking sector could be restricted. Against this background, government guarantee systems would be of particular importance. The accounts available support our assessment that the central bank is basically still prepared to act. At the end of the year, we expect the monetary policy stimulus to expand again by extending or increasing the PEPP, which could be accompanied by an increase in the tiering factor.