ECB Boosts Crisis Stimulus With Caveat on Not Using It All Up - Bloomberg

The European Central Bank escalated its campaign to shield the euro zone from a possible double-dip recession with another burst of monetary stimulus, while cautioning that it may not use up all the new firepower.

The additional envelope of 500 billion euros ($606 billion) in bond-buying approved at the meeting on Thursday “need not be used in full,” President Christine Lagarde said in a news conference “if favorable financing conditions can be maintained.”

The relatively restrained comments on how much stimulus will ultimately be deployed helped push the euro to an intraday high, and German bonds erased their gains.

Her comments came after policy makers increased and extended emergency bond purchases for another nine months until the end of March 2022, and approved more long-term loans on cheap terms for another year. The stimulus aims to lock in low interest rates at least until the pandemic crisis is over.

While the economic rebound in the third quarter was stronger than expected, the coronavirus continues to pose serious risks to public health and to the euro area, Lagarde said, observing that the economy is likely to contract in the final three months of the year.

“Looking ahead, the news of prospective roll-outs of vaccines allows for greater confidence in the assumption of a gradual resolution of the health crisis,” she told the conference. “However, it will take time until widespread immunity is achieved, while further resurgences in infections, with challenges to public health and economic prospects, cannot be ruled out.”

• The Pandemic Emergency Purchase Program was increased by 500 billion euros ($606 billion) to 1.85 trillion euros, and extended it by nine months to at least the end of March 2022. Reinvestments will be made until at least the end of 2023
• An older bond-buying program will continue to run at a monthly pace of 20 billion euros until shortly before interest rates rise
• Favorable terms on the ECB’s TLTRO-III bank lending program will be extended by 12 months to June 2022, and the ECB will make three new offers under the program next year. Total amount banks can borrow raised to 55% of banks’ stock of eligible loans, from 50%
• Four additional emergency longer-term refinancing operations (PELTROs) will be offered in 2021 “to provide an effective liquidity backstop.”
• The easing of collateral rules announced earlier this year will be extended to June 2022. It will reassess the measures before the end date
• Interest rates remained unchanged, with the deposit rate at -0.5%

The decision came as European Union leaders moved closer to resolving a dispute over a 1.8 trillion-euro joint fiscal package that would put the region on a firmer footing for 2021.

The ECB aims to keep financial conditions loose in the face of mounting debt burdens as governments pump fiscal aid to companies and households. The economy is almost certainly shrinking again, with many shops and restaurants restaurants forced to close to to contain infections.

Also in the background is the risk of a no-deal Brexit. British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, who held talks over dinner on Wednesday, agreed to give both sides until Sunday to try to bridge their differences.

The euro’s recent surge against the dollar is another headwind for the ECB, putting downward pressure on inflation by making imports cheaper. Lagarde said that while the exchange rate isn’t a target, “we will continue to monitor it very carefully going forward.”

The single currency rose to an intra-day high of $1.2135 following the decision before pulling back.

“For me, the last euro downside risk of the year has passed,” said Jordan Rochester, a foreign exchange strategist at Nomura.

Central bankers have been signaling a new round of stimulus for weeks, stressing the need to keep support measures running at least until an economic recovery is entrenched. Covid-19 vaccines are only just being rolled out, and the economic scars will last well past the end of the health emergency.

Chief economist Philip Lane has also stressed the need to get inflation, which is currently below zero, back on its pre-pandemic path toward the goal of just-under 2% as soon as possible.

The Governing Council repeated its pledge to keep stimulus in place until it “judges that the coronavirus crisis phase is over.”

— With assistance by Jana Randow, Carolynn Look, Alexander Weber, Craig Stirling, Zoe Schneeweiss, Wout Vergauwen, Alexei Anishchuk, Alexander Michael Pearson, Fergal O'Brien, Catherine Bosley, Jeff Black, Brian Swint, Alaa Shahine, Lucy Meakin, David Goodman, Eileen Gbagbo, Jeannette Neumann, Alessandra Migliaccio, William Horobin, and Greg Ritchie

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https://news.google.com/__i/rss/rd/articles/CBMicGh0dHBzOi8vd3d3LmJsb29tYmVyZy5jb20vbmV3cy9hcnRpY2xlcy8yMDIwLTEyLTEwL2VjYi1ib29zdHMtcGFuZGVtaWMtc3RpbXVsdXMtd2l0aC1tb3JlLWJvbmQtYnV5aW5nLWJhbmstbG9hbnPSAXRodHRwczovL3d3dy5ibG9vbWJlcmcuY29tL2FtcC9uZXdzL2FydGljbGVzLzIwMjAtMTItMTAvZWNiLWJvb3N0cy1wYW5kZW1pYy1zdGltdWx1cy13aXRoLW1vcmUtYm9uZC1idXlpbmctYmFuay1sb2Fucw?oc=5

2020-12-10 12:58:00Z
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