Lagarde Says Next Stimulus to Rely on Emergency QE, Bank Loans
The European Central Bank sees emergency bond buying and long-term loans to banks as its primary levers for providing further support to the euro-area economy, President Christine Lagarde said.
“While all options are on the table, the pandemic emergency purchase program and targeted longer-term refinancing operations have proven their effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves,” she said. “They are therefore likely to remain the main tools for adjusting our monetary policy.”
The Stoxx Europe 600 extended gains after Lagarde’s comments, and Italian 10-year bond yields extended their decline, signaling optimism that the ECB would increase asset purchases.
The euro area’s economic outlook has darkened considerably in recent weeks as record-breaking coronavirus cases across the region have forced governments to reintroduce restrictions on activity. A stronger-than-expected rebound over the summer months has given way to a possible double-dip recession, and Lagarde warned that any future recovery is likely to be unsteady.
What Bloomberg Economics Says…
“Ahead of widespread distribution of a vaccine we anticipate activity will continue to bump along some way below pre-Covid levels. The experience of multiple countries over the last few months has shown economic activity and virus cases trapped in a rinse-repeat cycle.”
— Bjorn van Roye and Tom Orlik
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The ECB is widely anticipated to increase and extend its 1.35 trillion-euro ($1.6 trillion) pandemic bond-buying program at its meeting in December, and many economists also expect it to make changes to its liquidity offering for banks. Lagarde stressed that the duration of policy support matters as well as the level of financing conditions.
“While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved,” she said. “The recovery may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine roll-out.”
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— With assistance by Piotr Skolimowski
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