Europe | Monetary Policy & Inflation
The next few days could mark an important turning point for Europe. Agreement on a €750bn EU recovery fund, even if only partial, would be a significant step forward for fiscal coordination and send an important signal on solidarity. A reduced burden on monetary stimulus will also be welcome. Any recovery fund is unlikely to materially change the path of economic recovery over the coming quarters, but, without it, market stress and fragmentation within the transmission of monetary policy could well return.
ECB: Taking Stock
Thursday’s ECB meeting is unlikely to bring new policy announcements. The ECB delivered a larger-than-expected €600bn increase in the size of its pandemic emergency purchase programme (PEPP) at the last meeting on 4 June and extended the programme through June next year. Weekly purchases are averaging around €26bn, to stand at €383bn out of a €1.35tn envelope. Earlier announcements on pandemic emergency longer-term refinancing operations (PELTROs), more favourable terms on the existing TLTRO-IIIs, and an easing of collateral requirements also add to the loosening in monetary policy over recent months.
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