Lagarde Says ECB Ready to Act as Pandemic Burdens Economy
Christine Lagarde, president of the European Central Bank speaks at a launch event. (Photographer: Simon Dawson/Bloomberg)

Lagarde Says ECB Ready to Act as Pandemic Burdens Economy

The European Central Bank is ready to deploy more monetary stimulus to aid the recovery if needed as the pandemic damps prospects for the economy, according to President Christine Lagarde.

Addressing European lawmakers on Monday, Lagarde called the recovery across the 19-nation euro zone uncertain and incomplete, with consumers cautious to spend and companies reluctant to invest.

“The public health crisis will continue to weigh on economic activity and poses downside risks to the economic outlook,” she said in a video conference with members of the European Parliament’s Economic and Monetary Affairs Committee. The Governing Council “continues to stand ready to adjust all of its instruments, as appropriate.”

Lagarde Says ECB Ready to Act as Pandemic Burdens Economy

Resurgent coronavirus infections are threatening new restrictions, jeopardizing the economic progress made since lockdowns earlier this year plunged the region into a deep recession.

Policy makers have started to stake out their positions ahead of a discussion on whether the ECB should add support to nurture the economy. Most economists predict the 1.35 trillion euro ($1.6 trillion) emergency bond-buying program will be expanded this year -- probably in December when new economic forecasts are published.

“Further stimulus looks likely despite opposition,” ABN Amro NV’s Nick Kounis, who expects the bond program to be expanded by 500 billion euros in December, said in a report. “We think that there is a majority of officials who are already starting to come behind this view.”

The ECB said earlier this month that the recovery is in line with its baseline projections. Yet some of the most recent surveys have shown that while manufacturing is still improving, services are shrinking again.

Differing Views

One of the most worrying indicators -- noted recently by Executive Board member Fabio Panetta and Bank of Spain Governor Pablo Hernandez de Cos -- is flagging inflation. The annual rate of consumer prices fell below zero in August for the first time in four years.

Lagarde said she’s not overly concerned about “slightly different views and opinions” among her fellow policy makers, stressing she was a consensus-builder and describing some dissent as healthy.

Still, she said the ECB’s current projection that consumer-price growth will average 1.3% in 2022 -- well below the goal of just under 2% -- is “not satisfactory.”

The inflation rate is expected to remain negative over the coming months. Preliminary data for September are due on Friday.

“The Governing Council will carefully assess all incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook,” Lagarde said.

Euro strength, which undermines price growth by cutting import costs, is a challenge for the central bank. Lagarde declined to comment on the specific level of the currency, which has retreated from a two-year high this year, reiterating that it is not a policy target for the ECB.

She repeated, though, that the value of the euro is important for how inflation outlook is going to develop.

“We monitor those movements very closely in order to adjust our measures as a result of inflation projections in short and medium term,” she said.

©2020 Bloomberg L.P.

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