ECB Keeps Its Crisis Support Steady With Recovery Fragile
Christine Lagarde, president of the European Central Bank speaks at a launch event. (Photographer: Simon Dawson/Bloomberg)

ECB Keeps Its Crisis Support Steady With Recovery Fragile

The European Central Bank kept its emergency monetary stimulus unchanged as the region enters a critical phase in its recovery from the coronavirus crisis.

President Christine Lagarde and her colleagues held their pandemic bond-buying program at 1.35 trillion euros ($1.6 trillion) and the deposit rate at -0.5% on Thursday, maintaining the flood of liquidity that has calmed markets and kept borrowing costs low.

Follow the ECB decision and press conference on our live blog

While officials are becoming more confident in the rebound from the worst economic shock in living memory, the upturn has slowed and new risks lie ahead. Infections are rising again and the stronger euro could weigh on inflation. Economists expect the ECB to increase and extend bond purchases later this year.

Lagarde will hold a press conference call at 2:30 p.m. Frankfurt time to explain the ECB’s decision and unveil new projections for output and inflation.

ECB Keeps Its Crisis Support Steady With Recovery Fragile

The ECB predicted a record 8.7% contraction for 2020 back in June. That figure will now show an improvement, according to a person familiar with the matter, and the overall forecasts through 2022 will be little changed.

Executive Board members Philip Lane and Isabel Schnabel both said recently that data seen over the summer months more or less confirm the June projections.

Lagarde may choose to address the rise in the euro though, which has jumped more than 10% against the dollar since March. That makes the ECB’s job of boosting inflation harder by driving down import prices. Lane, the institution’s chief economist, said this month that the exchange rate “does matter” for monetary policy.

The single currency held onto its gains after the policy decision. It traded at $1.1846 at 2:04 p.m. Frankfurt time, up 0.4% on the day and near a two-year high.

What Bloomberg’s Economists Say

“Lagarde will have reason for caution at today’s press conference -- signs have emerged that the euro area’s recovery has slowed, virus cases are on the rise and inflation has decelerated sharply.”

David Powell. Read his ECB REACT

The president is likely to be quizzed in her press conference on how long the ECB expects to use its pandemic bond-buying program, and whether it’ll be increased. Some officials have stressed the importance of limiting its duration.

The program is currently scheduled to run through June next year. Most economists surveyed by Bloomberg expect an announcement by December to add 350 billion euros and extend it by six months.

©2020 Bloomberg L.P.

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