ECB reassures itself on cheap money as virus woes persist
Christine Lagarde is expected to underline the European Central Bank’s commitment to cheap money on Thursday as Europe’s largest economies grapple with a surge in coronavirus infections that could slow the eurozone’s recovery.
After calming nervous markets last month by promising to “significantly” step up the pace of its emergency bond purchases in the event of a pandemic, analysts say the 25 members of the ECB’s governing council are not suffering any damage. pressure to take further action.
Instead, President Lagarde will likely use her 14:30 (12:30 GMT) press conference to reiterate the message that there will be no premature end to “favorable funding terms” until the crisis is considered. as complete and the rebound will not be firmly engaged.
It is widely predicted that the Frankfurt institution will keep interest rates at historically low levels, including a deposit rate of minus 0.5% – meaning banks pay to store excess cash with of the ECB.
No adjustments are planned either for the ECB’s € 1.85 trillion ($ 2.2 trillion) Pandemic Emergency Bond Purchase Program (PEPP), which is expected to last until March 2022.
“The ECB press conference may well be boring this time,” said Holger Schmieding, economist at Berenberg bank.
The aim of the ECB’s measures, which also include very cheap loans for banks, is to keep borrowing costs low to encourage spending and investment in the 19-country currency club. in order to stimulate growth and inflation.
Lagarde could also reiterate his plea for eurozone governments to share the burden through fiscal stimulus.
Those efforts were boosted when a high-level German court on Wednesday launched a lawsuit against the European Union’s € 750 billion recovery fund, paving the way for its ratification.
Lagarde has frequently called for the implementation of the historic fund, saying it has a “key role” to play in restoring the health of the region.
– Looking beyond inflation –
The former French finance minister and former head of the International Monetary Fund can also expect to be asked about the future pace of asset purchases.
Following last month’s pledge to accelerate debt purchases in response to rising bond yields, the ECB’s weekly PEPP purchases averaged € 17 billion, up from around € 12 billion in January and February.
While investors are keen to get a glimpse of the future pace of buying and how the ECB plans to end this program, observers believe Lagarde will keep his cards close to his chest.
“Silence is golden,” said ING bank economist Carsten Brzeski, adding that the next meeting on June 10 should bring more clarity, when the ECB unveils new growth and inflation forecasts.
In quarterly projections released in March, the ECB surprised observers by slightly increasing its growth forecast for 2021 from 3.9% to 4.0%, fueled by optimism over the deployment of the Covid-19 vaccine in Europe and the rebound in the global economy.
As the speed of inoculations has picked up across the block in recent weeks after a bumpy start, many countries are battling the spread of more contagious virus variants, including strains first detected in Britain and in South Africa.
Major eurozone economies Germany, France and Spain are among those that have extended or reimposed closures and travel restrictions to curb Covid business, weighing on the growth prospects of the second trimester.
“In June, the ECB and the markets will have a much better idea of the severity of the current wave of infections and restrictions as well as the progress of the vaccination campaign and its impact on the economic outlook,” said Schmieding.
Eurozone inflation continued its upward trend and climbed to 1.3% in March, fueled in part by rising energy prices.
Economists see inflation even higher in the coming months, possibly exceeding the inflation target long out of reach of the ECB by “near but below” 2.0%.
Lagarde, however, pointed out in March that price growth was being driven by “temporary factors” linked to the pandemic, such as pent-up consumer demand as viral brakes relaxed.
The ECB will “see through it,” she said, and stick to its ultra-loose monetary policy as long as core inflation remains low.
© 2021 AFP