The ECB delivering the message that they will be stepping up PEPP purchases, in their statement earlier today. The central bank also added a caveat that they will be more flexible with purchases moving forward, depending on “market conditions” while maintaining the previous rhetoric of potentially using the entire PEPP envelope or “re-calibrating” it if necessary.

ECB Rate Statement

• ECB leaves key rates unchanged in March

• Deposit facility rate -0.50%
• Main refinancing rate 0.00%
• Marginal lending facility 0.25%

• ECB reaffirms size of PEPP at €1.85 trillion
• PEPP purchase over the next quarter to be significantly faster
• ECB to buy flexibly according to market conditions
• This is done with a view to prevent tightening of financing conditions
• If favourable financing conditions can be maintained moving forward, full PEPP envelope need not be used
• PEPP envelope can be recalibrated if required
• Full statement

It is all about PEPP and “favourable financing conditions” as the ECB makes mention to the latter (or related) four times in its statement this month. The most notable one being:

Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.

Adding to that is the following statement as well:

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.

They are steering clear of pinpointing the rise in yields as the particular reason for reaching such conclusions, but we all know what has led them down this path. So far, that is enough to keep the peace in the market and is arguably a step up compared to the verbal threats that they have issued over the past two weeks or so.

Lagarde will surely provide better context in her press conference later. German bunds are responding accordingly as yields fall and the euro has also pared its some of its earlier advance in a fall from 1.1960 to 1.1942 against the dollar.