ECB: We were there during the first wave and we will also be there during the second


The central bank leaves the reference rate unchanged and maintains the anti-crisis interventions - Possible changes in monetary policy instruments to support the economy postponed to December

ECB: We were there during the first wave and we will also be there during the second

ECB: We were there during the first wave and we will also be there during the second

We were there during the first wave of infections and we will also be there during the second, with all our means at our disposal and even beyond to support the economy. We have already amply demonstrated that the power of the ECB’s interventions is far from the limit. With this promise yesterday, President Christine Lagarde presented the decisions of the Governing Council on monetary policy.

The reference rate for banks therefore remained stable at -0.5%. Furthermore, no new aid programs have been announced, after the central bank had already initiated extensive support measures in June, including an expansion of its pandemic emergency purchase program (PEPP) by 600 billion euros to 1.35 trillion euros. Furthermore, purchases had been extended at least until the end of 2021 and will continue to be made flexibly over time, across asset classes and across countries. The Governing Council will reinvest redeemed principal on maturing securities under the PEPP at least until the end of 2022.

However, for December the ECB is preparing to recalibrate all the tools at its disposal so as to support price growth towards the target near but below 2%, ensuring favorable financing conditions for the economy, Lagarde said.

Fears for November

The ‘sharp increase in infections and the containment measures taken since the end of the summer suggest a significant weakening of economic activity in the last quarter after the rebound in the third quarter. We expect a very weak November’ Lagarde announced. ‘The resurgence of infections presents new challenges to health systems and the growth prospects of the European economy and it is undeniable that the recovery is losing momentum faster than expected’.

The economy therefore shows a clear deterioration in the short-term outlook. This is also reflected in the inflation data, which worsens in negative territory. In fact, from -0.2% in August it dropped to -0.3% in September, also due to falling energy prices, consumer distrust and downward pressure on prices in some specific sectors such as transport. . However, Lagarde refuses to talk about deflation: ‘even though the Eurozone will continue to see negative price increases probably until the first months of 2021, due to factors such as falling oil prices and the German VAT cut, we do not see deflation - it is negative inflation’ continued Lagarde. ‘In fact, we expect the economy to recover next year. Above all with an accommodating monetary policy that this time is also accompanied by an expansive fiscal policy, there are all the conditions for a recovery, which will reflect a positive increase in prices’.

In this regard, the ECB relies heavily on the implementation of the Recovery Fund, which allows European monetary and fiscal policy to go hand in hand, multiplying their impact. ‘It is necessary that the Recovery fund - said Lagarde - be accompanied by efficient spending and reforms. ‘It is necessary that the Recovery Fund - said Lagarde - be accompanied by efficient spending and reforms. I would not be surprised if in the light of the second wave of infections there were further fiscal policy measures adopted’.

At the same time, the Governing Council of the ECB was unanimous in assessing the significant impact of contagion and containment measures on growth and in the view that the scope of aid instruments needs to be reviewed at its next December meeting. ‘We cannot yet say what this will entail. Recalibration will be made necessary by the scale of the pandemic, by its speed, by the containment measures that will be taken by the states and by the fiscal policy responses’, concluded Lagarde.

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