European Central Bank Press conference comparison — 22 July 2021 vs 16 December 2021
This European Central Bank press conference comparison covers 22 July 2021 and 16 December 2021. Overall, the newer document was more hawkish. The ECB’s overall communication shifted from a strongly accommodative posture in July to a cautiously hawkish tone in December, as it begins tapering emergency stimulus while signalling that rate hikes remain distant. Next decision likely to focus on further gradual normalisation of asset purchases, with inflation data determining the pace.
What changed
More hawkish. The ECB’s overall communication shifted from a strongly accommodative posture in July to a cautiously hawkish tone in December, as it begins tapering emergency stimulus while signalling that rate hikes remain distant. Next decision likely to focus on further gradual normalisation of asset purchases, with inflation data determining the pace.
- Inflation — More hawkish. Inflation assessment shifted from purely transitory to acknowledging higher and persistent levels, albeit still expected to ease, representing a hawkish tilt.
- Labour Market — Little changed. Labour market language introduced with neutral characterisation of improvement, no directional shift from prior absence.
- Rate Path — More hawkish. Rate path guidance moved from extremely dovish outcome-based conditionality to a more hawkish stance with PEPP taper and sequencing toward eventual rate hikes, though no hike in 2022.
- Balance Sheet — More hawkish. Balance sheet stance turned hawkish as PEPP net purchases are discontinued in March with reduced pace, partially offset by increased APP and reinvestment extension.
Key wording
the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.
The Governing Council expects the key ECB interest rates to remain at their present or lower levels until – and that's when it begins to be important – we see inflation reaching 2% well ahead of the end of our projection horizon.
we continue to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.
Inflation was 1.9 per cent in June. We expect inflation to increase further over the coming months and to decline again next year. The current increase is largely being driven by higher energy prices and by base effects from the sharp fall in oil prices at the start of the pandemic and the impact of the temporary VAT reduction in Germany last year. By early 2022, the impact of these factors should fade out as they fall out of the year-on-year inflation calculation.
We see the risks to the economic outlook as broadly balanced.
Any worsening of the economy could therefore threaten their financial health, which could trickle through to the quality of banks’ balance sheets.
Net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.
We expect net purchases to end shortly before we start raising the key ECB interest rates.
First, in the first quarter of 2022, we expect to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) at a lower pace than in the previous quarter. We will discontinue net asset purchases under the PEPP at the end of March 2022.
Inflation has risen sharply owing to the surge in energy prices, and also because demand is outpacing constrained supply in some sectors. Inflation is expected to remain elevated in the near term, but should ease in the course of next year. The inflation outlook has been revised up, but inflation is still projected to settle below our two per cent target over the projection horizon.
In view of the current uncertainty, we need to maintain flexibility and optionality in the conduct of monetary policy.
If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.
Official documents
Background reading
Related
22 July 2021 press conference · 16 December 2021 press conference · Earlier meeting · Later meeting · Previous comparison · Next comparison · Methodology
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