The European Central Bank has launched a fresh burst of stimulus in an attempt to help the eurozone economy recover from the coronavirus pandemic, promising to buy €500bn more bonds over a longer period and providing extra cheap funding for banks.
The ECB increased the size of its pandemic emergency purchase programme (PEPP) from €1.35tn to €1.85tn and pushed back the end of its main crisis-fighting tool from next June until at least March 2022, while reinvesting the proceeds of maturing securities until at least the end of 2023.
The central bank also launched a series of auctions offering banks financing at deeply negative rates as low as minus 1 per cent — in effect paying them to borrow money — provided they maintain the flow of credit to businesses and households. These auctions will run until December 2021 and the ultra-low rate has been extended by a year until June 2022, with banks’ access slightly expanded.
Christine Lagarde, ECB president, said that if the economy recovered quickly from the pandemic the full amount of the PEPP “need not be used in full”, but equally it could be expanded even further if needed.
The eurozone economy is expected to shrink in the fourth quarter, she added; incoming data suggested the pandemic would have a “more pronounced near-term impact” on the economy and inflation remained “very low”.
Although she repeated her guidance that “risks remain tilted to the downside”, she said that they had “become less pronounced”.
In a statement announcing its decision, the ECB said it would keep its deposit rate unchanged at minus 0.5 per cent while extending several of its crisis-fighting tools, including prolonging recently loosened collateral requirements until June 2022 and extending its facility for other central banks to access euro liquidity until March 2022.
It also said a series of four new pandemic emergency, longer term refinancing operations would be launched next year, providing funding to banks at negative rates to provide “an effective liquidity backstop”.
The central bank said: “The monetary policy measures taken today will contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability.”
However, it warned that “uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine rollouts”, adding that it continued to monitor the exchange rate after the euro rose to its highest level for more than two years against the US dollar.
Earlier this year, the pandemic plunged the eurozone into its deepest recession for a generation and the bloc is expected to slide into a double-dip downturn in the final three months of 2020 after new restrictions on social contact were imposed to contain a second wave of coronavirus infections.
However, the forthcoming rollout of vaccines has fuelled hopes of a strong rebound.
The ECB revised down its eurozone growth forecast for next year to 3.9 per cent, but raised its forecast for 2022 to 4.2 per cent, while expecting growth of 2.1 per cent in 2023. Its inflation forecast was lowered, predicting a rise from 0.2 per cent this year to 1.4 per cent in 2023 — still well under its target of below, but close to, 2 per cent.
Analysts said the stimulus moves were in line with their expectations, after the ECB announced in October that it planned to “recalibrate” its policies.
Andrew Kenningham, economist at Capital Economics, said the expanded measures “underline the ECB’s commitment to using its balance sheet well beyond the end of the health emergency” and that they were “likely to keep peripheral bond yields falling even from their current record-low levels”.
Frederik Ducrozet, strategist at Pictet Wealth Management, called the decision “underwhelming”.
The latest moves by the ECB come amid rising fears that its policies are having a diminishing impact. Interest rates are at record lows and a growing amount of eurozone government debt is priced at a negative yield. Spain on Thursday issued a 10-year bond with a negative interest rate for the first time.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50LzM3ODc1NWMyLTE0MjctNDlkYy1hZWZjLWQzNzk3N2ZlNDBiZtIBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50LzM3ODc1NWMyLTE0MjctNDlkYy1hZWZjLWQzNzk3N2ZlNDBiZg?oc=5
2020-12-10 13:45:00Z
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