Report
Patrick Artus

What arguments could the ECB use to continue a large quantitative easing programme in 2021, even if inflation rises?

Inflation is likely to meet or even exceed the 2% target in the euro zone in 2021, given the decline in productivity caused by the new health standards introduced as a result of the COVID epidemic. But as the ECB is faced with very high public debt ratios and continued massive fiscal deficits in 2021, it will want to continue a large quantitative easing programme in 2021 despite a rise in inflation. What arguments could it use? That this rise in inflation is temporary, as the health measures are likely to be discontinued after the end of the epidemic (discovery of a vaccine); That it is not really inflation, but a price hike caused by new regulations (similar, for example, to the price hike caused by a VAT increase); That stopping quantitative easing would lead to a sharp widening of peripheral countries' yield spreads, and that this would prevent an effective transmission of monetary policy, and that it is therefore not at all a question of helping governments finance high fiscal deficits.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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