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ECB Policymakers Debated Flexibility, Purcahse Enevelope Of Asset Purchases: Minutes

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European Central Bank policymakers discussed the flexibility and target of the bank's emergency bond purchases that were unveiled to support the euro area economy amid the disruption caused by the coronavirus, or Covid-19, pandemic, the minutes of the July 15-16 policy meeting showed on Thursday.

In July, the ECB Governing Council left its key interest rates and the volume of its asset purchases unchanged as policymakers saw early signs of a gradual economic recovery from the slump induced by the coronavirus pandemic, but significant uncertainty regarding the outlook.

The flexibility of the Pandemic Emergency Purchase Programme, or PEPP, was highlighted as the key element of its effectiveness and efficiency in policy transmission, the minutes, which the ECB calls "account", showed.

The minutes showed that some policymakers wanted to fix the asset purchase target for the EUR 1,350 billion PEPP as its ceiling, citing better-than-expected data in recent weeks.

"The argument was also made that the flexibility of the PEPP suggested that the net purchase envelope should be considered a ceiling rather than a target," the minutes said.

"The point was made that incoming data had surprised on the upside and some of the downside risks surrounding the outlook prevailing at the time of the Governing Council's June monetary policy meeting had receded, increasing the possibility that the envelope might not have to be deployed fully."

However, policymakers agreed that the PEPP envelope would have to be used in full, based the latest economic assessment of ECB staff and in the absence of any major upside surprises to the medium-term outlook.

Policymakers also stressed on the importance of effective communication at this juncture and underlined that the Governing Council should "avoid creating new expectations of further monetary policy action", but "it should also emphasize that it had the tools and policy space to take further action if needed."

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