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The European Central Bank decided to keep interest rates unchanged and to increase the pandemic emergency purchase programme (PEPP) by 600 billion euros. With the larger PEPP envelope, analysts at Danske Bank do not expect the ECB to announce
further measures at the current juncture. 

Key Quotes: 

“The ECB decided to increase the PEPP envelope by EUR600bn to EUR1,350bn, which was slightly more than our estimate and consensus of EUR500bn.”

“With the new increased envelope, the PEPP would be exhausted in late February 2021, if the ECB does not lift the envelope again, or the purchase rate will have to slow down.

“Looking ahead, with the larger PEPP envelope, we do not expect the ECB to announce further measures at the current juncture. During the press conference, Christine Lagarde was relatively balanced in her assessment, albeit acknowledging the downside risks to the -8.7% growth forecast for 2020. Today’s decision was on a broad consensus, while there was unanimity to do something.”

“Fixed income markets reacted positively on the slightly higher than expected package, most notably led by Italy, where we saw the BTP-Bund spread tightening by 20bp. We now have more ECB easing but a stronger EUR.”