Wednesday, May 12, 2021

ECB keeps rates and stimulus stable as it assesses recession risk

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The European Central Bank left its policy unchanged on Thursday when assessing whether last month’s stimulus will be enough to support a recovery in the euro area economy, which is suffering from the latest coronavirus lockdowns.

The resurgence of the virus and restrictions to control it are widely expected by economists to plunge the bloc of 19 countries into a double-dip recession this winter; the slowness of vaccinations also threatens to delay the expected economic recovery.

The ECB move came six weeks after the central bank extended its emergency bond purchase program to € 1.85 billion and added € 300 billion to ultra-cheap loans it it grants the banks while extending them both until next year.

ECB said he had “decided to reconfirm his very accommodating monetary policy”.

Repeating a shift in focus announced last month, he added that emergency bond purchases would be “carried out to preserve favorable financing conditions during the pandemic period” and that the € 1.85 billion could not not be used in their entirety or increase further if necessary.

In a press conference after the policy meeting, ECB President Christine Lagarde said “uncertainty remains high” and the latest coronavirus restrictions mean there are “risks lower for the short-term economic outlook ”.

Ms Lagarde said that the ECB’s expansionary policy was aimed at “preventing a tightening of financial conditions incompatible with combating the downward impact of the pandemic on the expected trajectory of inflation”.

Florian Hense, an economist at Berenberg, said earlier Thursday that the ECB was “on a wait-and-see basis” as it “took stock” of the impact of the latest stimulus measures.

Widely Monitored Alternative Data Indicators to suggest Growing coronavirus restrictions have significantly slowed economic activity in the euro area since the start of this year. Travel to retail and hospitality outlets and workplaces, as well as consumer confidence and spending, have all been affected, according to high-frequency activity monitors that offer more metric. of the economy than official statistics, although they are less complete and less reliable. .

Eurozone inflation was negative in December for the fifth month in a row, and economists doubt the ECB’s ability to meet its target of just under 2 percent – something it has failed to do for most of the past decade . The euro recent rise against the US dollar at its highest level in nearly three years is weighing on prices by lowering the cost of imports.

“Underlying price pressures are expected to remain subdued due to lower demand, especially in the travel and tourism sectors,” Ms. Lagarde said, adding that market-based inflation expectations had slightly increased. increased but remained low.

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