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ECB Shadow Council Minutes Members see no urgency to change course on bond purchases

Most members of Handelsblatt’s Shadow ECB Council are in favor of maintaining the pace of the ECB's bond purchases.
11.06.2021 - 12:25 Uhr Kommentieren
Most members of Handelsblatt’s Shadow ECB Council are in favor of maintaining the pace of the ECB's bond purchases. Quelle: dpa
ECB Headquarters in Frankfurt

Most members of Handelsblatt’s Shadow ECB Council are in favor of maintaining the pace of the ECB's bond purchases.

(Foto: dpa)

Frankfurt The members argue that market conditions are fragile and volatility is on the rise. Therefore, they fear that a slower pace risks being interpreted as a tapering step and could lead to distortions in the markets.

Growth and Inflation forecasts

Members of the ECB Shadow Council revised their inflation forecast for 2021 upward from 1.4 percent to 1.7 percent. They also revised their forecasts upward for 2022 from 1.2 to 1.3 percent and for 2023 from 1.3 to 1.5 percent.

The members kept their GDP forecast for this year at 4.3 percent. They revised their forecast upward for 2022 from 3.9 to 4.2 percent and kept their forecast for 2023 at 1.9 percent.

Shadow Council macroeconomic forecasts (March forecasts in brackets)
HICP-Inflation*GDP-Growth
20211.7 (1.4)4.3 (4.3)
20221.3 (1.2)4.2 (3.9)
20231.5 (1.3)1.9 (1.9)

Contributors: D. Antonucci, M. Annunziata; A. Bosomworth, S. Broyer; F. Ducrozet, J. Henry, J. Krämer, D. Schumacher, K. Utermöhl.

*Harmonized Index of Consumer Prices, a weighted average of price indices of eurozone countries.

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Standort erkennen

    Maintain buying pace

    At its meeting, the ECB has to decide about the future pace of its bond purchases. It had increased this significantly in the second quarter, in order to counter an undesirable increase in bond yields. The question now is how it should proceed with them.

    Most of the members of the Shadow Council are in favor of keeping the pace of the bond purchases at the current elevated level. They argue that market conditions are still fragile and volatility is on the rise. Therefore, they fear that a slower pace risks being interpreted as a tapering step and could lead to distortions in the markets. Several members criticized the fact that the ECB is pre-committing itself to a certain pace of bond purchases in advance, thereby foregoing the possibility of flexibly adapting purchases to the market conditions. Several members advocated restoring flexibility by allowing the ECB to deviate from the buying pace.

    Options for PEPP

    With regard to the existing PEPP bond purchase program, several members of the Shadow Council expect it to expire as planned in March 2022. They expect more details on this at the Governing Council meeting in September. It was argued that the APP program will probably have to be expanded when PEPP expires to avoid a cliff effect afterwards. Several members see the opportunity to make the APP program more flexible. One member suggested that there should be no fixed monthly amounts set for purchases made through the APP program in the future, on the contrary, the amounts should be adjusted as required. Another member mentioned the possibility to raise the previously applicable purchase limits. Another option mentioned was to exclude the purchases within the PEPP program when calculating the purchase limits.

    Inflation outlook remains weak

    Most members also agreed that most of the recent spike in inflation was due to temporary factors, even more in the Euro area than in the US. Accordingly, the weak wage developments speak against a higher inflation in the longer term. One member expressed a different view and expects an increase of inflation in the medium-term, both in the US and Europe. He argues that the current money growth will lead to inflation because it is driven by money supply to fund government borrowing.

    Members’ individual vote on the ECB’s deposit rate (currently minus 0.5 percent):

    MemberAffiliationDeposit rate        Asset Purchases
    José AlzolaThe Observatory GroupUnchanged       Unchanged     
    Marco AnnunziataAnnunziata Advisors UnchangedUnchanged         
    Daniele AntonucciQuintet Private BankUnchangedUnchanged     
    Elga BartschBlackrockUnchangedUnchanged     
    Andrew BosomworthPimcoUnchanged     Unchanged     
    Sylvain BroyerS&P Global RatingsUnchangedUnchanged     
    Jacques CaillouxRokos CapitalUnchangedUnchanged      
    Frederik DucrozetPictetUnchangedUnchanged     
    Janet HenryHSBCUnchangedUnchanged      
    Jörg KrämerCommerzbank UnchangedReduction in Q3
    Thomas MayerFlossbach von StorchUnchangedUnchanged
    Dirk SchumacherNatixisUnchangedUnchanged     
    Katharina UtermöhlAllianzUnchanged               Unchanged     

    Frankfurt, Germany

    June 9th, 2021

    Written by Jan Mallien

    Background information
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