What changed in the European Central Bank statement — 29 October 2020

European Central Bank held policy at -0.50%. The October statement is more dovish on the rate path, explicitly acknowledging downside risks and flagging a possible December easing, while balance sheet and inflation language remain broadly unchanged. This signals that the ECB is preparing to deliver additional accommodation at the next meeting, likely through rate cuts or enhanced asset purchases.

Decision

Decision: hold
Deposit facility rate: -0.50%

Going into the decision

On the day, the committee read as dovish — -2.1 on a scale where +3 means every member wants higher rates and −3 means every member wants cuts.

Reconstructed from official member remarks published before the decision date. 4 of 27 active members had stored official remarks.

What changed

The October statement is more dovish on the rate path, explicitly acknowledging downside risks and flagging a possible December easing, while balance sheet and inflation language remain broadly unchanged. This signals that the ECB is preparing to deliver additional accommodation at the next meeting, likely through rate cuts or enhanced asset purchases.

Inflation — Little changed. No current key passage on inflation; prior's readiness to adjust instruments was not reiterated, implying no new signal on inflation stance.
Labour Market — Little changed. No passages on labour market in either document, indicating no shift.
Rate Path — More dovish. Current document adds explicit downside risk assessment and hints at further easing in December, while retaining lower-for-longer guidance, marking a clear dovish shift.
Balance Sheet — Little changed. PEPP envelope unchanged and APP linkage reaffirmed, but omission of flexible purchase language and APP monthly pace suggest no material change in balance sheet stance.

Previous wording

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: No change in key rates, as widely expected.

The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
rate path: Opens door to rate cuts if inflation does not converge; conditions are demanding.

The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation.
balance sheet: Reaffirms large-scale asset purchases to support inflation.

The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy.
balance sheet: Flexibility to address fragmentation and transmission risks, reassuring markets.

The Governing Council will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over.
balance sheet: Minimum duration but conditional on crisis, keeping open-ended support.

Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year.
balance sheet: APP pace unchanged, temporary envelope continues as announced.

The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
balance sheet: Links APP duration to rate hike timing, implying no rate hikes until inflation is strong.

The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.
inflation: Reaffirms symmetric inflation target, keeping optionality for further easing if needed.

Current wording

In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate.
rate path: Acknowledges downside risks explicitly, setting a dovish tone.

The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path.
rate path: Strong hint at further easing in December to maintain favourable conditions.

Official statement

Monetary policy decisions

29 October 2020

In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate. The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path. This will foster the convergence of inflation towards its aim in a sustained manner, in line with its commitment to symmetry.

In the meantime, the Governing Council of the ECB took the following monetary policy decisions:

(1) 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. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

(2) The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over. The Governing Council will reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

(3) Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates. The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

(4) The Governing Council will also continue to provide ample liquidity through its refinancing operations. In particular, the third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive source of funding for banks, supporting bank lending to firms and households.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

Background reading

Cadence's comparison is generated from the official documents. Read the methodology.