September 20, 2020

European Central Bank keeps stimulus policies on hold

The European Central Bank left its key stimulus settings unchanged with almost a trillion euros (dollars) in stimulus still in the pipeline to bolster the eurozone’s rebound from the severe coronavirus shutdowns.

The pause may only be a prelude to even more stimulus later this year as the ECB and global counterparts such as the US Federal Reserve make clear their determination to do maintain their massive support to limit the damage from the virus outbreak.

The bank’s governing council made the decision at a meeting Thursday.

Markets were waiting to hear ECB head Christine Lagarde’s outlook on possible threats to the economic rebound from a stronger euro, which can hurt exporters, and from weak inflation, which indicates weak demand.

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% 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 1.35 trillion euros ($1.6 trillion) in newly printed money into the economy through purchases of government and corporate bonds, on top of 20 billion euros 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% 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.

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The ECB stimulus effort comes as the Fed has shifted its 2% 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%, far from the bank’s goal of below but close to 2%.

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Source:: News Headlines

      

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