WORLD ECB to beef up stimulus plan amid second virus wave, low interest rates

WORLD

ECB to beef up stimulus plan amid second virus wave, low interest rates

Global Times

20:34, December 06, 2020

The European Central Bank is set to unleash more stimulus for the eurozone at its last meeting of 2020 on Thursday, as the region's battered economy grapples with a second coronavirus wave.

"The Governing Council discussed the appreciation of the euro, but as you know we don't target the exchange rate," ECB President Christine Lagarde said in a press conference on September 10. (Photo: VCG)

ECB chief Christine Lagarde in October all but promised that extra support was on the way, when she said the Frankfurt institution would "recalibrate" its instruments in December.

The ECB will also unveil fresh economic forecasts likely to have been revised downwards after a spike in virus cases forced renewed shutdowns across Europe, although the prospect of mass vaccinations from 2021 could brighten the longer-term outlook.

Analysts widely expect the ECB's governing council to add another 500 billion euros ($600 billion) to its 1.35 trillion euro pandemic emergency bond-buying program, and extend it beyond the current deadline of June 2021. The purchases are aimed at keeping borrowing costs low to encourage spending, investment and bolster economic growth.

The ECB could also offer more ultra-cheap credit to banks for longer under a scheme known as TLTROs, whereby banks get loans at highly favorable interest rates in return for lending on to the wider economy. The central bank is all but certain to keep interest rates at historic lows, but may increase its pre-pandemic asset purchases from the current 20 billion euros a month.

At Thursday's press conference, Lagarde is likely to reiterate pleas for governments to share the load through fiscal stimulus, as EU member states bicker over a 750 billion euro recovery fund that has been blocked by Poland and Hungary.

The ECB will be "under pressure to do more while the European budgetary policy response is lagging behind," said Pictet Wealth Management strategist Frederik Ducrozet. The ECB's last round of projections in September forecast 3.1 percent quarter-on-quarter growth in the fourth quarter of 2020.

That number has become outdated after countries reintroduced virus restrictions that once again shuttered businesses and kept people at home across the 19-nation bloc, unraveling a recovery that had started over the summer.

On the bright side, successful vaccine trials have raised expectations that mass inoculations could start in Europe in early 2021, slightly behind Britain and the US, paving the way for a reopening of the world's economies.

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