If the Governing Council judges that the “coronavirus crisis phase is over”, then net purchases under PEPP will end by March 2022. As things stand today, this is likely to happen. It is important, therefore, to stress that exiting from PEPP would not signal the end of our very accommodative monetary policy. Monetary policy will continue to provide accommodation through our quartet of tools, namely asset purchases and stocks, long-term liquidity provision, negative interest rates, and forward guidance. These tools have been durably established by the new strategyiii and we should probably start calling them the “new conventional” instruments rather than “non conventional” ones. Let me now share some more specific thoughts on the successes of our two crisis instruments, PEPP and TLTROs, and how these lessons might influence our future reflections on our quartet. 2. The lessons from the PEPP The PEPP has been instrumental in the euro area since the start of the Covid crisis, thanks to its dual role regarding stance and transmission. It put an end to the turmoil in the financial markets during spring last year, and since then has ensured favourable financing conditions for both public and private borrowers. We can draw two main lessons from the PEPP’s achievements: with respect to asset purchases, stock matters, and flexibility matters. First, the financial literature suggests that it is changes in the anticipated stock of assets that exert a downward pressure on longterm interest rates through a decrease in term premia.
François Villeroy de Galhau: Monetary strategy and inflation in Europe - what’s new? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the SUERF Conference, New York City, 12 October 2021. * * * Ladies and Gentlemen, I am very happy to join you today for this discussion on "EU and US Perspectives". Exactly one year after my previous intervention in this Forum, I definitely see a change for the better in the economic climate in Europe. Europe is now the most vaccinated continent in the world. Economic growth in the euro area has so far been stronger than expected and according to our latest forecasts, real GDP is expected to exceed its pre-Covid level by the end of this year. If anything, we can perhaps say that uncertainty has shifted a little bit from the growth outlook to the inflation outlook, but I will come back to this point later. My speech today will address three interconnected issues: I. What are the key changes following the ECB strategy review? II. Where do we stand on inflation? III. Perspectives on the ECB's monetary policy up to and after the end of the Covid crisis. I. The ECB’s monetary policy framework The unanimous adoption in July of the new monetary policy strategy was an important achievement for the Eurosystem. Let me pay tribute to Christine Lagarde, and sum up our review in three key messages: 1.