European Central Bank Statement comparison — 22 July 2021 vs 16 December 2021

This European Central Bank statement comparison covers 22 July 2021 and 16 December 2021. Overall, the newer document was more hawkish. The ECB shifted toward a less accommodative stance by announcing PEPP tapering and end, along with APP taper, signalling the start of normalisation. However, the dovish rate guidance remains unchanged, so the next decision is likely to continue tapering while holding rates steady.

What changed

More hawkish. The ECB shifted toward a less accommodative stance by announcing PEPP tapering and end, along with APP taper, signalling the start of normalisation. However, the dovish rate guidance remains unchanged, so the next decision is likely to continue tapering while holding rates steady.

Inflation — Little changed. Prior document explicitly noted inflation well below target; current document lacks a direct inflation assessment, shifting to a more neutral tone.
Labour Market — Little changed. No labour market passages in either document; no change.
Rate Path — More hawkish. Prior forward guidance was strongly dovish with elevated PEPP; current document announces PEPP reduction and end, APP taper, and ties APP end to rate hikes, despite retaining the dovish rate condition.
Balance Sheet — More hawkish. Prior document maintained elevated PEPP purchases and flexibility; current document reduces PEPP pace in Q1 2022 and discontinues it, while beginning APP taper.

Key wording

22 July 2021

the medium-term outlook for inflation is still well below the Governing Council’s target.
inflation: Confirms inflation remains weak, supporting accommodative policy.

In these conditions, the Governing Council today revised its forward guidance on interest rates. It did so to underline its commitment to maintain a persistently accommodative monetary policy stance to meet its inflation target.
rate path: Explicit commitment to persistent accommodation via forward guidance revision.

the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges 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.
rate path: New guidance lowers the bar for rate hikes; inflation must be sustainably at 2% well before forecast horizon ends, accepting overshoot.

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.
rate path: Rates on hold as widely expected.

the Governing Council continues to expect purchases under the PEPP over the current quarter to be conducted at a significantly higher pace than during the first months of the year.
rate path: Sustains elevated PEPP purchases, reinforcing dovish stance.

If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
rate path: PEPP flexibility allows adjustment either way, but emphasis on maintaining favourable conditions.

16 December 2021

The Governing Council expects net purchases to end shortly before it starts raising the key ECB interest rates.
rate path: Ties APP end to rate hike timeline, hinting at earlier lift-off.

In support of its symmetric 2% inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term. This may also imply a transitory period in which inflation is moderately above target.
rate path: Rate hike condition remains distant, allowing inflation overshoot.

In the first quarter of 2022, the Governing Council expects to conduct net asset purchases under the PEPP at a lower pace than in the previous quarter. It will discontinue net asset purchases under the PEPP at the end of March 2022.
rate path: Ending PEPP earlier than anticipated, signalling withdrawal of emergency support.

In line with a step-by-step reduction in asset purchases and to ensure that the monetary policy stance remains consistent with inflation stabilising at its target over the medium term, the Governing Council decided on a monthly net purchase pace of €40 billion in the second quarter and €30 billion in the third quarter under the APP. From October 2022 onwards, the Governing Council will maintain net asset purchases under the APP at a monthly pace of €20 billion for as long as necessary to reinforce the accommodative impact of its policy rates.
rate path: APP taper schedule revealed, reducing but still buying.

The Governing Council judges that the progress on economic recovery and towards its medium-term inflation target permits a step-by-step reduction in the pace of its asset purchases over the coming quarters. But monetary accommodation is still needed for inflation to stabilise at the 2% inflation target over the medium term.
rate path: Balances recovery progress against ongoing need for accommodation.

Official documents

Background reading

22 July 2021 statement · 16 December 2021 statement · Earlier meeting · Later meeting · Previous comparison · Next comparison · Methodology