ECB Chief Economist Philip Lane said in a speech there is “considerable uncertainty about pandemic dynamics. Recent intensification in some countries represents a “significant downside risk” and requires “prolongation of various fiscal support measures”.
But, “the launch of vaccination campaigns is a milestone in the eventual resolution of the pandemic health crisis, even if there is only cloudy visibility of the calendar towards sufficient immunity to enable the restoration of normal economic activity,” he added.
Under these conditions, standard Poole analysis calls for a “two-sided and flexible approach” to the total scale of PEPP. “If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.”
