ECB monetary policy meeting preview - no material changes to monetary policy
The European Central Bank meeting is on Thursday 10 June 2021, announcement is due at 1145GMT with President Lagarde speaking at 1230GMT.
- There will be new staff projections at this meeting
Via PIMCO, a preview (in brief from a long piece).
- we expect no material changes to monetary policy
- will revisit the purchase pace of the pandemic emergency purchase programme (PEPP) against a fresh round of quarterly macroeconomic projections. The ECB currently buys €80bn per month under the PEPP and €20bn per month under the regular asset purchase programmes, and we expect that stance to be broadly maintained over the following quarter.
- The ECB might decide to signal a somewhat lower PEPP purchase pace on the back of seasonality considerations, but we don't expect the message to be one of reduced flow support.
- The ECB deems the present configuration of monetary policy tools supportive enough, which is not easy to reconcile with an ECB staff 2023 HICP inflation forecast of 1.4%, a forecast that is unlikely to be revised
On upgraded forecasts, specifically for inflation:
- a marking to market of slightly stronger-than-expected data is likely to see the 2021 forecast increased somewhat, expectations for later in the forecast horizon are unlikely to be altered, with the most relevant 2023 HICP inflation projection probably unchanged at 1.4%. At present, Euro area inflation is driven almost entirely by energy price base effects and there has been no sign of a sustained pick-up in underlying price pressures. Even a minor upward revision would see the ECB continue to project a substantial undershoot relative to the price stability target over the policy relevant horizon.
- A 1.4% 2023 HICP inflation projection is very low, and raises question marks over the ECB's interpretation of price stability, and over a strategy of simply maintaining the current monetary policy configuration for longer instead of easing conditions aggressively. The ECB will have to remain highly accommodative for years to come and, if anything, the review conclusions will likely lean towards accommodation for longer and conventionalizing previously unconventional monetary policy instruments.