President of the European Central Bank Christine Lagarde.
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The European Central Bank hinted at more monetary stimulus on Thursday as the region’s two largest economies prepare for a second national lock.
The bank decided to keep its interest rates and broader monetary policy unchanged, but suggested that further political action in the eurozone could begin as soon as December.
“The Governing Council will carefully assess the information received, including the dynamics of the pandemic, the prospects for the introduction of vaccines and the development of the exchange rate,”
According to him, the new economic forecasts in December “will allow an in-depth reassessment” of the economy and risks.
“Based on this updated assessment, the Governing Council will calibrate its instruments, as appropriate, to respond to the evolving situation,” the bank added.
In September, the ECB calculated a decline of 8% in euro area GDP this year, followed by a rebound of 5% in 2021. As for headline inflation, it forecasts 0.3% for 2020, followed by an increase to 1% in 2021. But the institution, led by Christine Lagarde, will update those forecasts in December.
The ECB’s latest statement suggests that politicians will adjust their monetary policy based on forthcoming forecasts.
“The door to action is wide open in December. Hopefully, the situation will not worsen further, so the ECB will have to rush through the door earlier than planned,” said Carsten Brzeski, global macro chief. ING, in note.
No action – for now
Thursday’s decision means that the interest rate on the ECB’s main refinancing operations, marginal lending facility and deposit facility remains at 0%, 0.25% and -0.5% respectively. In addition, its Pandemic Emergency Purchasing Program (PEPP), created after the outbreak of coronavirus, remained unchanged.
This comes as the eurozone struggles with a rapid rise in Covid-19 infections, prompting some governments to impose new restrictions.
French President Emmanuel Macron announced a second national blockade on Wednesday, although schools and factories will remain open. Until Germany announced on Wednesday “Light lock”, as restaurants, bars and public events are closed from next week.
The second wave of infections could deal a new blow to the eurozone economy, which is expected to recover in the second half of 2020. Preliminary data released last week show that business activity in the eurozone contracted in October amid new social restrictions. However, the picture is expected to worsen if governments continue to take further action.
Another problem facing the ECB is the strength of the euro, which has risen by almost 5% against the US dollar since the beginning of the year. At its meeting in September, the central bank said it had discussed strengthening the euro, but stressed that it was not focused on the exchange rate with its policies. The stronger euro is often seen as a problem for the European economy, given the euro area’s dependence on its exports.
This is an innovative story and is being updated.