What changed in the European Central Bank statement — 16 December 2021

European Central Bank held policy at -0.50%. The ECB shifted hawkish on rate path by accelerating PEPP wind-down and outlining an APP taper that ends before rate hikes, though the conditional rate guidance remains accommodative. The next decision is likely to continue tapering while maintaining optionality on the exact timing of rate lift-off.

Decision

Decision: hold
Deposit facility rate: -0.50%

Going into the decision

On the day, the committee read as dovish — -1.4 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. 5 of 27 active members had stored official remarks.

What changed

The ECB shifted hawkish on rate path by accelerating PEPP wind-down and outlining an APP taper that ends before rate hikes, though the conditional rate guidance remains accommodative. The next decision is likely to continue tapering while maintaining optionality on the exact timing of rate lift-off.

Inflation — Little changed. No material change in inflation assessment; no explicit guidance in key passages.
Labour Market — Little changed. No material change in labour market assessment; no explicit guidance in key passages.
Rate Path — More hawkish. Prior tapering and neutral guidance replaced by earlier PEPP end, APP taper schedule, and explicit link between APP end and rate hikes, signalling a faster path toward tightening.
Balance Sheet — Little changed. Risk balance language remains flexible and symmetrical, with no directional shift in balance sheet stance.

Previous wording

The Governing Council continues to judge that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year.
rate path: Indicates a small tapering of PEPP, reducing accommodation pace.

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 unchanged as expected, key reference for near-term policy.

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: Opens door to lower rates and explicitly tolerates temporary inflation overshoot.

Net purchases under the APP will continue at a monthly pace of €20 billion.
rate path: APP unchanged, showing no shift in conventional QE.

The Governing Council will continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.
rate path: Reaffirms PEPP end date and envelope, no change in conditional commitment.

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: Provides flexibility on PEPP usage, both to undershoot and recalibrate, key for rates direction.

The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its two per cent target over the medium term.
rate path: Standard commitment to act if needed, no leaning one way or the other.

Current wording

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 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.

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: Confirms no rate change, as expected.

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.

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.

In view of the current uncertainty, the Governing Council needs to maintain flexibility and optionality in the conduct of monetary policy.
rate path: Highlights uncertainty, keeps options open for future moves.

Official statement

Monetary policy decisions

16 December 2021

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. In view of the current uncertainty, the Governing Council needs to maintain flexibility and optionality in the conduct of monetary policy. With this is mind, the Governing Council took the following decisions:

Pandemic emergency purchase programme (PEPP)

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.

The Governing Council decided to extend the reinvestment horizon for the PEPP. It now intends to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made efforts to achieve the Governing Council’s goal more effective. Within our mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability. In particular, in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time. This could include purchasing bonds issued by the Hellenic Republic over and above rollovers of redemptions in order to avoid an interruption of purchases in that jurisdiction, which could impair the transmission of monetary policy to the Greek economy while it is still recovering from the fallout of the pandemic. Net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.

Asset purchase programme (APP)

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. The Governing Council expects net purchases to end shortly before it starts raising the key ECB interest rates.

The Governing Council also 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.

Key ECB interest rates

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.

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.

Refinancing operations

The Governing Council will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy. The Governing Council will also regularly assess how targeted lending operations are contributing to its monetary policy stance. As announced, it expects the special conditions applicable under TLTRO III to end in June next year. The Governing Council will also assess the appropriate calibration of its two-tier system for reserve remuneration so that the negative interest rate policy does not limit banks’ intermediation capacity in an environment of ample excess liquidity.

***

The Governing Council stands ready to adjust all of its instruments, as appropriate and in either direction, to ensure that inflation stabilises at its 2% target over the medium term.

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.