ECB Monetary Policy Meeting Accounts: Argument was made that PEPP envelope should be considered a ceiling, not a target

The ECB released account of its July 15-16 monetary policy meeting. It noted that:

• While financial market conditions had continued to normalize since ECB’s June monetary policy meeting, they remained tighter and more fragile than before the pandemic;
• Monetary and fiscal policy measures had brought about a considerable improvement in financial conditions since the height of coronavirus crisis;
• Recent market developments were not fully backed by economic data and might be based on overly optimistic expectations about the European Council’s recovery package and about progress on developing a vaccine;
• Uncertainty about the economic outlook remained elevated;
• With regard to PEPP, the flexibility of the programme was highlighted as key element of its effectiveness and efficiency in supporting transmission of monetary policy over time;
• The argument was also made that flexibility of the PEPP suggested that net purchase envelope should be considered a ceiling rather than a target;
• The current presumption was that the PEPP envelope would have to be used in full;
• Governing Council had to await further data to better assess future path of economy and extent to which inflation was returning to its pre-crisis trajectory within projection horizon