FRANKFURT, Germany (AP) — The European Central Bank (ECB) left its key stimulus policies unchanged yesterday, with almost a trillion euros still in the pipeline to bolster the eurozone economy’s rebound from the severe coronavirus recession.
ECB President Christine Lagarde said the economy had shown “a strong rebound in activity” since the lockdowns eased but remained “well below” pre-virus levels.
She said high uncertainty about the path of the economy’s recovery meant that “ample monetary stimulus remains necessary” and repeated intentions to keep the ECB’s pandemic emergency bond purchase stimulus running through mid-2021.
The comments may be a prelude to even more stimulus later this year as the ECB and global counterparts like the United States (US) Federal Reserve make clear their determination to maintain their massive support to the economy to limit the damage from the virus outbreak.
The bank’s governing council made the decision yesterday to keep benchmark interest rates, the size of its bond-buying stimulus programmes and its outlook unchanged.
Many analyst think that the ECB will add to its pandemic emergency bond purchase stimulus at its December meeting, when it will have new inflation and growth forecasts.
The economy of the 19 euro currency countries plunged 11.8 per cent in the April-June quarter. Activity is picking up quickly but isn’t expected to regain pre-virus levels before 2022.
The bank is pumping EUR1.35 trillion (USD1.6 trillion) in newly printed money into the economy through purchases of government and corporate bonds, on top of EUR20 billion in monthly bond purchases from a stimulus effort launched before the outbreak.
Those measures come on top of cheap, long-term credit for banks to help them lend to businesses, and a negative rate penalty of 0.5 per cent on deposits left overnight by commercial banks as an incentive for them to lend the money rather than let it pile up at the central bank.
The ECB stimulus effort comes as the Fed has shifted its two per cent interest rate target to an average, meaning that it could maintain stimulus for a longer period by letting inflation run higher than the target.
Both central banks have struggled to raise inflation to their goals.
The ECB saw the inflation rate fall below zero in August with an annual figure of 0.2 per cent, far from the bank’s goal of below but close to two per cent.