European Central Bank Press conference comparison — 10 September 2020 vs 10 December 2020

This European Central Bank press conference comparison covers 10 September 2020 and 10 December 2020. Overall, the newer document was more dovish. The December meeting delivered a clear dovish expansion of asset purchases and an extended horizon, while acknowledging a deteriorated inflation outlook. This signals that the ECB is committed to maintaining highly accommodative conditions and stands ready to ease further if needed, making the next likely move an adjustment of existing tools rather than a rate change.

What changed

More dovish. The December meeting delivered a clear dovish expansion of asset purchases and an extended horizon, while acknowledging a deteriorated inflation outlook. This signals that the ECB is committed to maintaining highly accommodative conditions and stands ready to ease further if needed, making the next likely move an adjustment of existing tools rather than a rate change.

Inflation — More dovish. Inflation outlook is revised down and near-term impact of pandemic is described as more pronounced, reinforcing the need for accommodation.
Labour Market — Little changed. No material change in labour market assessment; the topic is absent from both documents.
Rate Path — More dovish. Forward guidance on rates remains unchanged with a conditional commitment to keep rates at present or lower levels, and the Committee reiterates readiness to adjust all instruments.
Balance Sheet — More dovish. PEPP envelope is increased by €500 billion and horizon extended to at least March 2022, signaling a strong easing action, though conditional language on not fully using the envelope is introduced.

Key wording

10 September 2020

We will keep the key ECB interest rates unchanged. We expect them to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
rate path: Rate path conditional on inflation convergence, signals prolonged low rates.

We will continue our purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion.
rate path: Reconfirms PEPP size, no change in stance.

We will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over.
rate path: Flexible end date tied to crisis, not calendar.

At the same time, in the current environment of elevated uncertainty, the Governing Council will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook.
rate path: First explicit mention of exchange rate in forward guidance signals increased monitoring; may foreshadow policy response if euro strengthens further.

Overall, the balance of risks to the euro area growth outlook is seen to remain on the downside.
rate path: Downside risks from pandemic, implies continued accommodation.

In the near term price pressures will remain subdued owing to weak demand, lower wage pressures and the appreciation of the euro exchange rate, despite some upward price pressures related to supply constraints.
inflation: Weak inflation outlook, euro appreciation adds downside risk.

10 December 2020

the Governing Council decided to keep the key ECB interest rates unchanged. We expect them to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
rate path: Rates on hold for extended period, with a dovish conditionality that allows for further cuts if inflation doesn't converge.

We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We therefore continue to stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.
rate path: Opens door to future easing (or potentially tightening) if exchange rate affects inflation, highlighting data-dependent approach.

We therefore continue to stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.
rate path: Signals willingness to ease further if needed, keeping policy accommodative.

Overall, the risks surrounding the euro area growth outlook remain tilted to the downside, but have become less pronounced.
rate path: Growth risks still down but less severe, suggesting gradual improvement but no imminent tightening.

What we have decided, as was anticipated as a result of the last October monetary policy discussions, is a recalibration of those instruments that we determined were most effective under the current pandemic circumstances. And it is with that in mind that we decided to concentrate the recalibration on PEPP, a temporary targeted and flexible asset purchase programme that is specifically designed for the pandemic; on TLTRO III which is intended to provide as much refinancing as possible to those banks that are lending to the economy; and to offer a very attractive rate for those that actually comply with the objective.
rate path: Confirms recalibration of PEPP and TLTRO III as main policy response.

Inflation remains very low in the context of weak demand and significant slack in labour and product markets. Overall, the incoming data and our staff projections suggest a more pronounced near-term impact of the pandemic on the economy and a more protracted weakness in inflation than previously envisaged.
inflation: Inflation outlook downgraded, justifying further stimulus and reinforcing dovish stance.

Official documents

Background reading

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