ECB’s chief economist Philip Lane said today, “the medium-term inflation dynamic is too slow, not too fast.””We still think we’re some distance in terms of medium term from 2%,” he added. “The trigger for monetary policy action is not there.”

“In addition to rate forward guidance, calibrating the volume of asset purchases also plays an important role in ensuring that the monetary stance is sufficiently accommodative,” said.

“The compression of term premia through the duration extraction channel plays a quantitatively-significant role in determining longer-term yields and ensuring that financing conditions are sufficiently supportive to be consistent with the delivery of our medium-term inflation objective.”

ECB Governing Council member Klaas Knot said “I still expect the rise in inflation to be largely temporary, but we have to take other scenarios with structurally higher inflation and higher interest rates into account. Because if we don’t, it could lead to shock price falls in the future.”

“The effect of energy prices on inflation is temporary by nature, as they need to keep rising to keep pushing up inflation”, Knot said. “But inflation is also pushed higher by global supply restraints, which might be less temporary. They could be caused by a readjustment in international trade, as supply chains are spread less across the globe.”

ECB Chief Economist Philip Lane said, “the red zone for everyone is if inflation became persistent at a number that’s immoderately above the inflation target. That’s a very far distance from where the euro area is.” He added, “we have to be the counterweight, honestly, in this debate.”

On inflation, he also said, “there’s solid reasons to believe that a lot of this is to do with the reopening of the economy and there’s very solid reasons to believe there’s a significant transitory component.”

In the accounts of ECB’s September 8-9 meeting, Governing Council members concurred with the assessment that “an accommodative monetary policy stance remained”. Also, “policy support from a sustained pace of net purchases under the PEPP, along with the other instruments and the recalibrated forward guidance, was deemed essential”.

Financing conditions had “had remained favourable or had loosened further” since June, and was “visible across a broad spectrum of indicators”. Inflation outlook had a “significant improvement over the course of the year”. However, the near-term increase in inflation was “largely driven by temporary factors that would fade in the medium term and not call for policy tightening.”

Regarding the reduction in PEPP purchase pace in Q4, on the one hand, it was argued that “a symmetric application of the PEPP framework would call for a more substantial reduction in the pace of purchases”. On the other hand, “reference was made to the recent repricing in nominal bond yields, which called for a prudent reduction in the pace of purchases”.

Also, it’s noted that “markets were already expecting an end to net asset purchases under the PEPP by March 2022”, but such expectation was “not showing a significant impact on financing conditions”.

Overall, all members agreed to “moderately scale down the pace of purchases under the PEPP”.

Full accounts here.