ECB Preview: Recalibrating, Not Easing
- The ECB is set to recalibrate its monetary policy instruments at next week’s meeting and the question is which tools it will use. Recent comments have focused on more PEPP and TLTROs as the main tools, but we expect the ECB to tweak its more technical parameters, such as tiering and collateral rules, as well.
- PEPP. We expect the ECB to add another EUR400bn to the current PEPP envelope running at least until end-2021. The ECB may also increase the APP purchase rate, but this is less powerful than the PEPP and it is not as important for the overall ECB monetary policy stance unless the purchase rate is increased significantly to, e.g., more than EUR40bn/month. The ECB will not commit to a monthly target under the PEPP.
- TLTRO/PELTROs. Extend the discount window to the entire duration of the liquidity operation (3y). Provide four additional TLTRO liquidity operations until Q1 22 (quarterly basis) and expand the eligibility pool. PELTROs to continue into end-2021 on a monthly basis.
- Tiering. Increase the tiering multiplier to 10x the reserve requirement.
- Collateral. Extending the 7 April grandfathering of the collateral eligibility rules until end-2022.
- No rate cut. Still no rate cut, but repeating the option to cut if needed.
Full report in PDF.