The Governing Council of the European Central Bank (ECB) has disclosed that it will discontinue the net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) at the end of March 2022.
According to the Council, it is conducting net asset purchases under the PEPP in the first quarter of 2022 at a slower pace than in the previous quarter but it may resume net purchases under the PEPP, if necessary, to counter negative shocks related to the pandemic.
“The Governing Council intends to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance”.
ECB
The pandemic, according to the ECB, has shown that under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective.
The Governing Council of the ECB stated that within its mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardize the attainment of price stability.
In particular, in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time, the Council explained.
Asset purchase programme (APP)
In line with the step-by-step reduction in asset purchases decided on in December 2021 and to ensure that the monetary policy stance remains consistent with inflation stabilizing at the Governing Council’s target over the medium term, monthly net purchases under the APP will amount to €40 billion in the second quarter of 2022 and €30 billion in the third quarter.
From October onwards, the Governing Council revealed that it will maintain net asset purchases under the APP at a monthly pace of €20 billion for as long as necessary to reinforce the accommodative impact of its policy rates. The Governing Council expects net purchases to end shortly before it starts raising the key ECB interest rates.
The Council also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period beyond the date it will start raising the key ECB interest rates.
The council indicated that this will last for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.
Key ECB interest rates
The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.
In support of its symmetric 2% inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium-term. This may also imply a transitory period in which inflation is moderately above target.
The Governing Council underscored that it will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy.
The Governing Council further disclosed that it will also regularly assess how targeted lending operations are contributing to its monetary policy stance. The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilizes at its 2% target over the medium term.
