Lagarde Says ‘No Doubt’ ECB Will Preserve Financing Conditions

The European Central Bank will be in the market “for an extended period of time” to ensure the economy has ample access to affordable funding to cope with the pandemic and its aftermath, President Christine Lagarde said.

“The ECB will make sure that financing conditions are preserved at a favorable level,” she said at a Davos Agenda panel discussion on Monday.

The central bank is pumping money into the euro-area economy with bond purchases and long-term bank loans to keep borrowing costs down, allowing governments to keep companies and households afloat with massive fiscal stimulus. That’s prompted debate over whether the ECB is effectively shifting toward a form of yield curve control -- deliberately managing bond yields.

Policy makers decided last week to keep monetary stimulus steady after boosting their pandemic bond-buying program to 1.85 trillion euros ($2.24 trillion) in December. They also added a line to their policy statement saying that the amount needn’t be fully spent if not necessary.

Lagarde noted on Monday that the line wasn’t new -- it had also been in her press conference in December.

The bond program “can be smaller if financing conditions remain favorable, but it can be larger if it needs to be larger to maintain those favorable financing conditions,” she said. “There is no ambiguity and no doubt in our minds.”

Philip Lane, the central bank’s chief economist, said earlier on Monday that the ECB is looking at a wide range of measures to gauge financing conditions in the euro area.

There’s a “prominent focus on the conditions facing customers who depend on bank-intermediated credit, as well as the conditions facing sectors which seek to obtain funding in bond markets,” he said. “A wide array of models and empirical methods is employed to assess the role played by financing conditions in determining the evolution of the economy and inflation dynamics.”

The euro area is likely to slip into another recession this winter as governments extend lockdowns to contain the spread of the resurgent coronavirus. Germany is keeping non-essential businesses shut until at least Feb. 14, while France may tighten restrictions in the coming days.

Concerns are heightened by new and more contagious coronavirus variants, while vaccination campaigns in the region are off to a sluggish start. Sentiment among German companies deteriorated in January, the Ifo Institute said on Monday.

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