ECB’s Lagarde Warns Coronavirus Adds to Economic Uncertainty

(Bloomberg) --

European Central Bank President Christine Lagarde said her institution is on watch as the coronavirus outbreak provides a new threat to the economic outlook.

The disease, which has spread worldwide after originating in China, has shuttered factories, canceled flights and kept workers at home as governments try to stem the contagion. Lagarde’s comments suggest that the ECB, like other central banks, is biding its time for now while stating a willingness to add monetary support if needed.

“While the threat of a trade war between the U.S. and China appears to have receded, the coronavirus adds a new layer of uncertainty,” Lagarde said in Paris on Wednesday. “So we’re continuing to monitor closely how these risks develop and how they feed into our central scenario for the economy.”

Her comments were echoed by Executive Board member Philip Lane, the ECB’s chief economist, at a separate event in Berlin.

“We are looking at it very carefully and, if you like, the natural benchmark is to look at previous events, whether SARS or other pandemics,” he said. “The history of these has been there could be a significant short-term effect, but no long-lasting effect.”

The Bank of Thailand on Wednesday cut its key interest rate to a record low, and the Philippine central bank governor hinted a similar move was imminent there. The Monetary Authority of Singapore said there is “sufficient room” for its currency to ease if the virus weakens the economy.

Lagarde said the ECB’s current policy language that promises to cut interest rates further or step up bond purchases if necessary acts as an “effective automatic stabilizer” that will provide some support.

She also used her speech to highlight longer-term risks such as climate change, saying it will ultimately affect monetary policy. That’s a part of the institution’s strategic review this year, and Lagarde said the central bank is already examining disclosure standards for incorporating climate issues into the risk assessment of the collateral it accepts from banks in exchange for loans.

©2020 Bloomberg L.P.