September 10, 2021 | 13:26
Some Call It a Taper, Some Don’t
It has been an interesting week for monetary policy, with two central banks doing what was generally expected, although there was some risk that they wouldn’t.
The RBA stayed true to its word and began to taper its weekly asset purchases from A$5 bln to A$4 bln, just like it said it would do back in July. Of course, lockdowns and the ongoing spread of the Delta variant cast some doubt on whether the Bank would forge ahead, but it did; however, there was a snag... the continued uncertainty posed by the pandemic. So, change of plans: the A$4 bln pace would hold until at least mid-February 2022, instead of November. But at least the RBA’s credibility is firmly in place.
The ECB finally decided that the “increasingly advanced” economic rebound would allow it to keep buying government bonds under the PEPP, but at a “moderately lower pace” than the prior two quarters, instead of a “significantly higher pace”. Frankly, this is something that perhaps should have been done back in June but that’s water under the bridge. But don’t call it a taper. As President Lagarde said eloquently, “The lady isn’t tapering... what we’re doing is recalibrating PEPP.” I would agree. Unless the timeframe was shortened (it wasn’t) and the envelope shrank (it didn’t), it is not tapering. In any event, the decision to do so was unanimous, as President Lagarde pointed out several times during the press conference. (We will find out how easy it actually was to arrive at that decision when the Minutes are released.) But this allows the ECB some time before it has to make some really tough decisions at yearend: specifically, what to do with the PEPP, which is scheduled to run until the end of March 2022. The ECB will have a “comprehensive” discussion on the programme on December 16, and plan for the coming months. While lots can happen in the next three months, it is unlikely the PEPP will run beyond the current end date. But if the full €1.85 trln envelope isn’t used up (small possibility), then the APP’s monthly asset purchases (currently at €20 bln) could be expanded, and to keep operating “for as long as necessary”.