Thread by @VMRConstancio

The ECB just announced decisions came quite close to what markets expected and so, have been rewarded by mild reactions. An increase in the EUR/USD rate; a slight improvement in stock prices and a slight increase in yields. all in all, a mild positive markets assessment 1/

PEPP will end in March but can "be resumed, if necessary" (a significant safeguard against virus flares); the reinvestment period for PEEP was extended to the end of 2024 instead of 2023. 2/

The only divergence with expectations was about the offset increase in APP. Purchases will start at monthly €40 bn in Q2 2022 (as foreseen) but they will decrease to 30bn in Q3 and back to 20bn from October onwards. Markets were expecting 40bn for the rest of the year 3/

Reinvestment of APP purchases is promised an "extended period of time" after rates lift-off. It was reaffirmed that APP can end only "shortly before" rates increase. Rates stayed the same and the forward guidance 3 criteria ensure that will last for quite some time 4/4

Another 2 important points in the press release concern the use of flexibility in the reinvestment of PEEP maturing bonds (not a great margin, though) in case of "stressed conditions" or "fragmentation related to the pandemic" 5/5

According to the ECB site, the Dec (and June) staff projections are prepared in a more bottom-up way that starts with the national CBs projections.That may (or not ) have influenced what seems to me exaggerated inflation forecasts for 22 (3.2%!?) 23 and 24 below 2% (1.8%) 6/6

ecb.europa.eu/pub/pdf/other/… “The projections published in June and December are prepared by Eurosystem experts from both the euro area national central banks (NCBs) and the ECB. The projections published in March and September are mainly the outcome of the ECB staff projection” 7/7

With 3 months interval: Sept inflation projections for 21,22,23: 2.2% 1.7% 1.5% . Dec (mostly NCBs) inflation projections:
2.6% 3.2%(!?) 1.8% and 1.8% for 2024. Despite stating that inflation “should fall slightly below 2% by the end of 2022” at ecb.europa.eu/pub/projection… 8/8