- At the December meeting, the Governing Council will publish new macroeconomic projections, including its inaugural assessment for 2024. It will also communicate the Pandemic Emergency Purchase Programme (PEPP) purchase pace over Q1 next year, as well as disseminate the game plan for quantitative easing after the PEPP ends in March 2022.
- The ECB currently buys around €70bn per month under the PEPP, plus €20bn per month under the regular Asset Purchase Programme (APP), a pace we believe will broadly continue over Q1 next year.
- While we do not have a strong view on the mix of asset purchase acronyms beyond March 2022, we continue to think the Governing Council will avoid a cliff-effect on asset purchases and choose instead to gradually reduce the pace from the current €90bn per month to a steady-state rate between €40-60bn per month over Q2 next year. This could potentially be in the form of a nine month €200-300bn post-PEPP transition envelope.
- We also think the ECB will maintain the current framework of revisiting the pace of asset purchases on a regular basis, with a view to gradually relegating them from a duration extraction tool to a pure policy rate signaling device over time.
- ECB support remains an anchor for risk assets but valuations offer limited room for spread compression.
- Risks to the macroeconomic outlook remain elevated and the implementation of the new ECB monetary policy strategy subject to uncertainty.