ECB launches new impetus to boost economy in Eurozone affected by Covid

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The European Central Bank has launched a new burst of stimulus with the aim of helping the eurozone economy recover from the coronavirus pandemic, by promising to buy more bonds for a longer period and by providing additional cheap funding to banks.

The ECB has increased the size of its emergency pandemic procurement program from € 1.35 billion to € 1.85 billion and has said it will push back the end of its main control tools against the crisis from next June to March 2022, while reinvesting the proceeds from securities maturing until at least the end of 2023.

The central bank has also launched a new round of auctions offering banks financing at very negative rates as low as minus 1 percent, on condition that the flow of credit to businesses and households is maintained. These auctions will run until December 2021.

In a statement announcing the decision, the ECB said it would keep its deposit rate unchanged at minus 0.5 percent. It will also extend its recently relaxed collateral requirements until June 2022.

The ECB said: “The monetary policy measures taken today will help to preserve favorable financing conditions during the pandemic period, thereby supporting the flow of credit to all sectors of the economy, supporting economic activity and preserving price stability over the medium term. “

He said “uncertainty remains high, including regarding the dynamics of the pandemic and the timing of vaccine deployments,” adding that he continued to monitor the exchange rate after the euro hit. its highest level for more than two years against the US dollar.

Earlier this year, the pandemic plunged the eurozone into its deepest recession in a generation, and the bloc is expected to a double dip slowdown in the last three months of 2020, after new restrictions on social contact were imposed to contain a second wave of coronavirus infections.

However, the upcoming vaccine rollout has fueled economists’ hopes for a strong rebound. Later Thursday, the ECB will release a new forecast, with analysts expecting it to lower its growth forecast for next year and raise it for the next two years.

After four consecutive months of negative inflation the ECB should expect price growth in the eurozone to return next year, but it should stay below its target of less than 2%, but close to, for at least three years.

The latest measures taken by the ECB come amid growing fears that its policies will have a diminishing impact. Interest rates are at historically low levels and an increasing amount of euro area public debt is valued at negative yield. Spain on Thursday for the first time issued a 10-year bond with a negative interest rate.

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