January 21, 2021
ECB: leaving space in its envelope_image

ECB: leaving space in its envelope

  • The ECB announced no policy changes while declaring that it need not use all the space in its €1,850bn envelope for the PEPP. That merely recognises the reality that follows its current purchase pace and programme end date, but it’s a hawkish point to make.
  • ​Reduced emphasis on the euro also arguably reflects a less-dovish reality of reduced disinflationary pressure from this source. Specifically, the introductory statement dropped “very closely” from this part, while the press release dropped it entirely.
  • ​​With government prohibitions on activity continuing to prevent supply, fiscal authorities remain best placed to respond to the ongoing depression, rather than the ECB. A tapered pace of purchases over a longer period is likely, in our view.

December 17, 2020
BoE: cruising at a top sustainable speed_image

BoE: cruising at a top sustainable speed

  • The BoE MPC unsurprisingly voted unanimously to keep Bank rate at 0.1% and make no changes to its asset purchase programme. Reverse gilt auctions will remain a similar size, albeit adjusted for reinvestment, with the same technical parameters.
  • Optionality is preserved to raise this pace if market functioning deteriorates again, otherwise, the next change remains likely to be tapering in May-21. No mention was made of rate cuts, which I still see as counter-productive and unlikely to occur.

November 05, 2020
BoE: QE for time and space over pace_image

BoE: QE for time and space over pace

  • The BoE downgraded its forecasts, as expected, returning to a more conventional policy trade-off in the process. Risk management considerations encouraged the MPC to exceed expectations, which it did by announcing a £150bn increase to the QE target.
  • This announcement encompasses the next increase I expected for February. It also creates room to maintain a tapered pace from May for three months longer than I expected, to Nov-21. The space to respond to market malfunction may matter more.