PEPP and TLTRO announcements widely expected by the market
Difficult for the ECB to surprise on the dovish side
- On the PEPP (pandemic emergency purchase programme), we expect the envelope to be increased by around €500bn and the timeframe to be extended from mid-2021 to year-end 2021. The reinvestment horizon could also be extended beyond the current end date of December 2022.
- We do not expect any merging of the PEPP and the APP (Asset Purchase Programme). Furthermore, we do not expect the APP temporary envelope to be renewed.
- We expect TLTRO (Targeted longer-term refinancing operations) with attractive terms: LT maturities (at least 3 years), low rates (-1%), tiering multiplier at 8-9x (vs 6x) and maybe some changes on borrowing allowances and lending benchmark.
- On both the PEPP and the TLTRO, we expect the focus to be on duration more than on intensity of asset purchases.
- The ECB will also update its macro-economic projections:
- We could see growth upgrades in 2020 following meaningful upside surprises in Q3 but the outlook for early 2021 has weakened in light of the virus containment measures.
- We could see inflation downgrades following the rise in the Euro.
- Bear in mind that we will also have the 2023 projections for the first time. We expect the inflation forecast by 2023 to be, again, below the objective (around 1.4% core inflation)
- We expect comment about the strength of the Euro, but there is nothing the ECB can do.
- We expect the overall tone to be clearly dovish to maintain favourable financial conditions.
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