The European Central Bank (ECB) will likely end the net purchases under PEPP to end March 2022, affirms Jan von Gerich, Chief Analyst at Nordea. They o not see the ECB going for a totally new asset purchase programme.

Key Quotes: 

“The December meeting will be very interesting, especially as judging by the recent speeches, many Governing Council members have become more worried about the inflation outlook, and the voices to the monetary policy focus away from asset purchases has increased.”

“There is probably not much disagreements about signalling that rate hikes are very unlikely as early as next year. However, there are likely to be more disagreements on what to do with the asset purchases. Even amidst the weakened Covid-19 outlook, the net purchase pace of the Pandemic Emergency Purchase Programme (PEPP) still looks likely to end in March 2022.”

“We continue to expect the ECB to complement EUR 20bn monthly pace in the Asset Purchase Programme with a fixed-size envelope of around EUR 200bn, as a compromise between the doves and the hawks. The current forward guidance on the APP, stating that net purchases are expected to end shortly before rate hikes start, is likely to be retained for now.”

“An idea about a totally new bond purchase programme has also been floated – one that would be able to respond to market shocks and would not necessarily need to follow the capital key. We do not believe the ECB will introduce such a programme, but will rather opt at using the PEPP reinvestments for this purpose, which will continue at least until the end of 2023.”