The Governing Council regularly recalibrates the net purchases under the pandemic emergency purchase programme (PEPP) based on a joint assessment of financing conditions and the inflation outlook. At its meeting in September, the Governing Council assessed that the prevailing level of financing conditions, in conjunction with the slight improvement in the medium-term inflation outlook, allow favourable financing conditions to be maintained with a moderately lower pace of net asset purchases under the PEPP than in the second and third quarters of this year. The Governing Council also confirmed in September its other measures, namely the level of the key ECB interest rates, the forward guidance on their likely future evolution, the purchases under the asset purchase programme, the reinvestment policies and the longer-term refinancing operations. It stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term. Europe’s response to the coronavirus shock During the COVID-19 crisis, fiscal policy support has been critically important in containing the economic fallout, with fiscal and monetary policy reinforcing each other. Going forward, ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy. As the recovery solidifies, fiscal measures need to become more targeted and the quality of public finances should be improved. Moreover, fiscal measures should go hand in hand with structural reforms in order to lift long-term growth. The Next Generation EU programme is of utmost importance here.
Recognizing that the reason that investors have generally stayed away from bonds issued by Asian entities is due to their low liquidity and low credit ratings, APEC is currently active in the design of instruments that can be traded in these markets, through its work on securitization and credit enhancement. Given that at present, a number of bonds issued by Asian entities are below investment grade, the use of securitization and credit guarantees to enhance the quality of these issues can act as a near-term solution to giving these issues a credit quality acceptable to investment managers, and give them the needed initial exposure to private investors. The introduction of these new instruments – which would attain a credit quality acceptable to investment managers by achieving a high rating from international rating agencies – would also benefit the international financial community by providing investors with a greater diversity of products and instruments for investment. More importantly, it would enable smaller corporate entities – who would otherwise be limited to financing themselves through short-term commercial bank lending – to access bond markets and find a source of funding more suitable to their needs. Cross guarantees A means of helping economies with less developed local bond markets to issue debt in the regional market may be through the use of cross guarantees.