The European Central Bank (ECB) has again made clear its unconditional support for the European economy at a time when forecasts once again indicate a slowdown in the recovery as a result of the second wave of coronavirus. The increase in contagions and the restrictions to deal with it make the entity foresee a new contraction in the euro zone in the last quarter of 2020 which, in all probability, will also continue during the first three months of 2021.
This was explained by the president of the institution, Christine Lagarde, after the monthly meeting of the Governing Council in Frankfurt, which has once again emphasized the need for a greater fiscal implication on the part of the countries. “Incoming economic data, surveys, and high-frequency indicators suggest that the outbreaks of the pandemic and intensifying containment measures have likely led to a decline in activity in the fourth quarter of 2020 and is also expected that influence activity in the first quarter of this year “, he said in his traditional appearance before the media.
The ECB already estimated these consequences in its December forecasts and precisely for this reason it has not made any changes to the monetary measures it has deployed to date in light of the impact of the pandemic. In other words, the reference interest rates for its refinancing operations (0%), the deposit facility rate (-0.50%) and the loan facility rate (0.25%) are maintained. .
There are also no changes in the rest of the financing programs launched by the bank at the beginning of the crisis, although it has warned for the first time that it does not have to exhaust its emergency purchase program (PEPP) if the financing conditions of the eurozone are favorable.
First notice about the PEPP
The monetary authority maintains its commitment to purchase a volume of up to 1.85 trillion euros in assets until March 2022, although “if favorable financing conditions can be maintained with asset purchase flows that do not exhaust the total of the program in the PEPP’s net purchase horizon will not be used in its entirety “, states the note published by the ECB.
“The uncertainty is pronounced and we have decided to reaffirm our accommodative policy,” said Lagarde. In this context, the central bank will continue to make net purchases of assets under its standard program (APP) at a monthly rate of 20,000 million net “for as long as necessary.” The ECB will reinvest funds from debt that is due for a “long” period of time after interest rates start to rise.
Despite the contraction in recent months, the European Central Bank has been slightly hopeful about the situation. In Lagarde’s opinion, there are several factors that allow being positive, such as the start of vaccination campaigns, Brexit agreement between the EU and the UK, the agreement between European leaders on community aid funds or the outcome of the US elections.
The risks, for their part, have to do with the outbreaks in some countries in the area, the impact of the new variants of Covid or the decline in activity in sectors such as services or retail. In any case, Lagarde believes that these risks remain on the downside, although with less intensity
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