PEPP to become ECB’s weapon of choice
Facing high but falling inflation, the governing council is expected to hold rates
The European Central Bank’s next policy move is likely to be a reduction of its balance sheet, rather than a new interest rate increase.
The ECB’s policy guidance indicates it will continue reinvesting assets held under the Pandemic Emergency Purchase Programme (PEPP) until the end of 2024. However, the governing council’s focus on reducing excess liquidity, and a faster-than-expected decline in inflation in September, are expected to speed up the transition to quantitative tightening.
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