European Central Bank keeps ultra-easy policy on hold

Cornelia Mascio
Luglio 18, 2020

Global stocks fell Thursday following mixed USA economic data and earnings, and as the European Central Bank (ECB) chief called on EU leaders to quickly agree on a huge recovery plan.

At its last meeting on June 4, the bank's 25-member governing council increased its pandemic emergency bond purchase program by EUR600 billion to EUR1.35 trillion, a step which pumps newly created money into the economy with the aim of keeping credit cheap and abundant for those who need it.

Interest rates on main refinancing operations, marginal lending and deposit facility are 0.00%, 0.25%, and -0.50%, respectively, according to the bank's statement.

She said the central bank now expects to spend the full amount of its pandemic bond-buying program, in apparent contrast to some policy makers, including Executive Board member Isabel Schnabel, who recently said going that far may not be necessary.

"Economic indicators remain well below the levels recorded before the pandemic, and the recovery is in its early stages and remains uneven across sectors and jurisdictions", Lagarde said during Thursday's press conference.

The euro zone economy may contract less this year than the European Central Bank had forecast and its recovery could also be quicker, the bank's Survey of Professional Forecasters showed on Friday.

USA and European markets were all weaker, but limiting their downside to about half a percent, with "spiking new COVID-19 cases appearing to continue to foster some uneasiness, along with escalating USA and China tensions", said analysts at Charles Schwab. He told members of parliament on Tuesday that he is "sombre" about the summit.

Lagarde said that "it is important for the European leaders to quickly agree on an ambitious package".

The fund would be financed through joint European Union borrowing and consist mainly of grants.

"It's often the case in Brussels that things take time and negotiations consume a lot of that time and energy", she said.

Carsten Brzeski, chief economist at ING Germany, a bank, said the ECB sees as much uncertainty as all other forecasters, as suggested by subdued labor market conditions, precautionary household savings, dampened investment, weak global growth and the risk of a second wave of lock down measures.

Brzeski believes the European Central Bank will wait until the September meeting, if not the late October meeting, before deciding on any next steps.

Growth projections for 2025, deemed as the "longer-term", were left unchanged at 1.4% but the longer-term inflation forecast was cut to 1.6% from 1.7%, short of the ECB's target for inflation at just below 2%.

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