Risks clearly tilted to the downside’, ‘muted underlying inflation pressure’ and ‘recalibrate its instruments’. These were the key words at today's ECB press conference, which ran like a guideline through the ECB's opening statement. In doing so, Christine Lagarde raised expectations that the ECB will expand its current monetary policy package in December, providing further stimulus for the whole year of 2021. Even before the rise in new infection figures in recent weeks, uncertainty about further economic development in the Euro area was high. Now it has worsened, risking that the ECB will not be able to reach its targeted inflation path.

Although the ECB left itself a back door open, the projections for growth and inflation for the years until 2023 still have to be awaited. But the path is clearly defined. Financing conditions have to remain favourable to support the economic recovery and to counteract the negative impact of the pandemic on the projected inflation path. We believe that the ECB will increase its Pandemic Emergency Purchase Programme (PEPP) in December from EUR 1,350 billion by EUR 500 billion and will extend the programme until the end of 2021. Although it is the most flexible instrument available, the ECB is reviewing all monetary policy instruments.

We still do not expect a reduction in the deposit rate and would consider it counterproductive. However, a further improvement in the conditions for long-term tenders (TLTROs) is a possibility, especially against the background of the recently tightened lending standards for corporate loans. It has an air of despair when the ECB explicitly refers in its statement to its already existing favourable refinancing conditions, which the banks should use to increase lending. But it cannot force the institutions to do so, as much as it tries everything to further sweeten lending conditions.


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