FRANKFURT, Dec 10 — The European Central Bank today injected more stimulus to help the eurozone 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 eurozone 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 (RM2.5 trillion) to €1.85 trillion 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 1330 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.”
Brexit uncertainty
Lagarde is likely to use the press conference to double down on pleas for eurozone governments to share the load and help shore up the economy with more fiscal stimulus.
EU leaders are due to meet in Brussels today to try to resolve a row with Poland and Hungary that is holding up a historic €750 billion coronavirus recovery fund.
Lagarde has called for the fund, which would help the member states hardest hit by the pandemic with loans and grants, to become available “without delay”.
Reporters are also likely to grill the former International Monetary Fund chief on the increasing risk of a no-deal Brexit, as Britain and the European Union run out of time to reach an agreement on post-Brexit trade and talks remain at a standstill.
A hard exit could severely disrupt trading on both sides of the Channel, creating further turmoil in a world already roiled by the pandemic.
The ECB’s economic growth projections, which for the first time will run up to 2023, are expected to show inflation remaining stubbornly low and far from the bank’s target of just under two per cent.
Official data showed that eurozone inflation remained stuck at -0.3 per cent in November, the fourth consecutive month of falling prices.
But even before the pandemic, inflation remained weak, fuelling calls for a rethink at the ECB.
Pursuing a less strict inflation target would follow in the footsteps of the US Federal Reserve, which recently pledged more leeway, allowing inflation to rise above 2.0 per cent.
The topic is a key part of the ECB’s “strategy review” launched under Lagarde and set to be concluded next year. — AFP
