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Slightly Optimistic Comments for the Euro, From ECB’s Kazimir

Posted Wednesday, August 26, 2020 by
Skerdian Meta • 2 min read

The European Central Bank started the PEPP programme in Q2, as the Eurozone economy was diving lower due to the lock-downs. Initially the target was for EUR750 billion, but then it was increased to EUR1.3 billion, as the recession became worse. But, the ECB might not exhaust all the funds from that programme, as Kazimir said earlier today, which should be sort of positive for the Euro, but we will see how far they will go with the programme. Below are Kazimir’s comments:

Comments by ECB governing council member, Peter Kazimir

We have room to wait for hard data
We are not obliged to use whole PEPP envelope
It seems to me we are in line with baseline scenario
It makes no sense to take action based on Q2 data
A wait-and-see stance is the most reasonable approach now

This just reinforces the notion that the ECB continues to adopt a more wait-and-see approach and will likely stay that way unless there is a hiccup in the economic recovery or that the recovery is more robust than initially anticipated. The latter seems unlikely so one can expect the ECB to stay on the sidelines until Q4 2020 at the very least before considering any potential policy tweaks.

The ECB is more focused on the recovery path rather than the hit taken by the economy in Q2 as a result of lockdown measures and the virus fallout. If anything, we can only perhaps expect the ECB to provide more clues on policy outlook in late Q3 and Q4 this year when there is a better sense of how the recovery is panning out.

The likely first step will be determining whether or not they see fit to fully utilise their PEPP envelope by the middle of next year. But for now, there’s still a lot of time and room before we reach such a juncture in their policy decision-making.

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