ECB promises December stimulus boost as pandemic worsens

By Francesco Canepa and Balazs Koranyi FRANKFURT (Reuters) - The European Central Bank committed on Thursday to take new action to contain the growing fallout from a second wave of coronavirus infections, saying it would hone its response by the time of its December meeting. While the bank's Governing Council left policy unchanged this time around, it was the clearest hint yet of more stimulus to come as new national lockdown measures make a double-dip recession increasingly likely for the euro zone economy. 'We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting,' ECB President Christine Lagarde told a news conference.

Reuters October 30, 2020 00:06:47 IST
ECB promises December stimulus boost as pandemic worsens

ECB promises December stimulus boost as pandemic worsens

By Francesco Canepa and Balazs Koranyi

FRANKFURT (Reuters) - The European Central Bank committed on Thursday to take new action to contain the growing fallout from a second wave of coronavirus infections, saying it would hone its response by the time of its December meeting.

While the bank's Governing Council left policy unchanged this time around, it was the clearest hint yet of more stimulus to come as new national lockdown measures make a double-dip recession increasingly likely for the euro zone economy.

"We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting," ECB President Christine Lagarde told a news conference.

She said ECB staff were already working on "all instruments", meaning the ECB could do more than just add to its 1.35 trillion euro ($1.60 trillion) Pandemic Emergency Purchase Programme at its next meeting on Dec. 10.

"We stick with our forecast of a 500 billion euro expansion to the PEPP programme we've pencilled in since June, but we think more is coming in parallel," Frederik Ducrozet, a strategist at Pictet Wealth Management, said.

ECB watchers are now expecting the central bank to offer banks multi-year loans with even longer maturities and pay them even more to borrow, provided they keep lending to households and firms.

The euro fell sharply against the U.S. dollar after Lagarde spoke and was last trading down 0.7% at $1.166. Government bond yields fell.

Lagarde repeated several times that risks to the region's recovery were "clearly tilted to the downside" and heavily dependent on the success of efforts to contain a new wave of infections threatening to overwhelm Europe this winter.

The bloc's biggest economies, Germany and France, announced new lockdowns overnight. Others among the 19 countries that use the euro are also shuttering large parts of their services sectors, a blow to the fledgling recovery.

Buying roughly 100 billion euros ($118 billion) of debt a month, the ECB has already pushed borrowing costs to record lows, and spreads between the borrowing costs of euro zone members are back to pre-pandemic levels.

But there are clear limits to its powers and Lagarde stressed there should be no delay to the European Union's 750 billion euro recovery fund, affirming her view that monetary policy should be complemented by massive government support.

"An ambitious coordinated fiscal stance remains critical," Lagarde said, adding that she would not be surprised if individual governments offered more fiscal support given the worsening conditions.

DEEPENING GLOOM

The ECB's problem is that fresh COVID-19 restrictions are challenging its view that the euro zone economy will grow back to its pre-crisis level by the end of 2022.

Inflation expectations, the ECB's main worry, are also declining. While the threat of deflation is not yet back on the agenda, inflation may fall short of the ECB's target of nearly 2% for many more years to come.

"The December staff projections will likely show that a return towards the ECB's inflation objective could be further delayed," said Elga Bartsch, head of macro research at the BlackRock Investment Institute.

New COVID measures in France mean people must mostly stay at home, going to work only if their employer deems it impossible for them to do the job remotely. Schools will stay open.

Germany, whose economy was already losing steam, will shut bars, restaurants and theatres in November, though schools will stay open and shops will be allowed to operate with strict limits on access.

Spain, one of Europe's worst COVID-19 hotspots, where the government is planning to announce a six-month state of emergency, may already be back in recession, while Italy has also unveiled new restrictions.

Lagarde said that how the virus is managed between now and the end of the year would determine what side of zero the fourth quarter's growth number falls on.

"The ECB was there for the first wave, the ECB will be here for the second wave," she said.

($1 = 0.8461 euros)

(Writing by Mark John; Editing by Catherine Evans)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Facebook releases first data on hate speech prevalence on its platform
News & Analysis

Facebook releases first data on hate speech prevalence on its platform

By Elizabeth Culliford (Reuters) - Facebook Inc for the first time on Thursday disclosed numbers on the prevalence of hate speech on its platform, saying that out of every 10,000 content views in the third quarter, 10 to 11 included hate speech. The world's largest social media company, under scrutiny over its policing of abuses, particularly around November's U.S.

Santa, barred from malls and chimneys, enters homes via interactive video
News & Analysis

Santa, barred from malls and chimneys, enters homes via interactive video

(Reuters) - Santa cannot sit with kids in shopping malls this year, but they can still tell him their Christmas wishlist in a video chat at home.     Technology company Storyfile has come up with an artificial intelligence alternative to the holiday tradition: an interactive website where Father Christmas answers questions as if in person

Facebook estimates hate speech seen in 1 out of 1000 views on its platform
News & Analysis

Facebook estimates hate speech seen in 1 out of 1000 views on its platform

By Elizabeth Culliford (Reuters) - Facebook Inc for the first time on Thursday disclosed numbers on the prevalence of hate speech on its platform, saying that out of every 10,000 content views in the third quarter, 10 to 11 included hate speech. The world's largest social media company, under scrutiny over its policing of abuses, particularly around November's U.S.