FRANKFURT AM MAIN: The European Central Bank on Thursday injected more stimulus to help the euro zone weather a second wave of the coronavirus, as it warned of an outlook fraught with uncertainty over the pandemic’s evolution and the rollout of vaccines.
At its final meeting of the year, the 25-member governing council agreed a rash of new measures to shore up the ailing euro zone economy after a flare-up in COVID-19 cases halted a summer recovery and forced renewed restrictions in many countries.
ECB chief Christine Lagarde had in October all but promised that extra support was under way, and the newest moves fell within market expectations.
The ECB boosted its main virus-fighting tool, its pandemic emergency bond-buying programme (PEPP), by 500 billion euros ($600 billion) to 1.85 trillion euros and extended the scheme from June 2021 to March 2022.
The corporate and government bond purchases are aimed at keeping borrowing costs low to encourage spending and investment, in the hopes of boosting growth and driving up inflation.
The ECB also said it would offer three further rounds of ultra-cheap loans to banks next year and extend the scheme’s most generous terms to June 2022.
Under so-called Targeted Long-Term Refinancing Operations (TLTRO), banks get more generous rates the more they lend on to the real economy.
For lenders giving credit to small firms, hard-hit in the current crisis, the rate can go as low as minus one per cent.
As expected, ECB governors left interest rates unchanged at historic lows. They also made no tweaks to their pre-pandemic asset purchasing, keeping the current pace of 20 billion a month.
“The ECB will be pleased to have largely steered market expectations in the right way,” said Berenberg economist Florian Hense. “Unexciting if not almost boring... is exactly how the ECB wants to be seen.”
Attention now shifts to Lagarde’s press conference at 13:30 GMT, where she will explain the monetary policy decisions and unveil the ECB’s newest inflation and economic growth forecasts.
Hopes that Europeans are on the cusp of a mass vaccination campaign against Covid-19 might brighten the GDP outlook, but inflation is expected to remain stubbornly low.
“The monetary policy measures taken today will contribute to preserving favourable financing conditions over the pandemic period,” the ECB said in a statement.
“At the same time, uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs.”
Lagarde is likely to use the press conference to double down on pleas for euro zone governments to share the load and help shore up the economy with more fiscal stimulus.
EU leaders are due to meet in Brussels on Thursday to try to resolve a row with Poland and Hungary that is holding up a historic 750-billion-euro coronavirus recovery fund. — AFP
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