Weidmann pries to play it cool, but we know the situation is not such

ECB’s Weidmann Says PEPP Will be Temporary, but we Know it Will Last

Posted Monday, June 22, 2020 by
Skerdian Meta • 1 min read

The European Central Bank introduced the PEPP programme worth €750 billion Euros, which has been expanded to €1.35 billion Euros. This was needed, as the Eurozone economies fell in a deep hole due to the coronavirus lockdown. This programme is already helping economies of the block, on top of regional programmes from governments.

They introduced the PEPP programme as a temporary one and ECB member Weidmann is repeating that stance, but we know it will take a long time until they decide to end the programme. The V-shaped recovery will likely be a square root-shape, so the post-coronavirus economy will be at a lower level than the pre-virus economy. Below are Weidemann’s comments:

Comments by ECB Governing Council Member, Jens Weidmann

  • PEPP is guided by inflation objective, will be temporary
  • Recovery from the coronavirus crisis will be “painfully slow”
  • The level of economic uncertainty is “exceptionally high”
  • PEPP should be flexible but not unbound
  • Capital key could be a useful benchmark
  • Shouldn’t assume that ECB will keep yields low forever
  • German economy probably bottomed out in April
  • Germany has fiscal space for more measures if needed

Well, if it is guided by their inflation goal and with the recovery set to be “painfully slow”, their definition of temporary may be until 2022 at the very least – especially if they plan to use the capital key as a benchmark for the stimulus programme.

I’m pretty sure they had the same thought with the negative rates experiment (as in for it to be temporary), but look where we are now. PEPP is definitely a different beast, but don’t expect the central bank to get rid of it so easily in the year ahead.

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