ECB Emphasizes Next Stimulus Focused on Bond-Buying and Loans
ECB Emphasizes Next Stimulus Focused on Bond-Buying and Loans
(Bloomberg) -- European Central Bank policy makers signaled that they’re coalescing around emergency asset purchases and long-term bank loans as their main options for boosting monetary stimulus next month.
Bank of Spain Governor Pablo Hernandez de Cos, Executive Board member Yves Mersch and Vice President Luis De Guindos all echoed President Christine Lagarde’s signal that the Pandemic Emergency Purchase Program and an ultra-cheap credit facility for lenders are the key candidates to be expanded or extended when the institution meets in December.
Policy makers are facing a highly uncertain economic environment where national lockdowns to curb the coronavirus threaten a new economic contraction. At the same time, recent announcements about the upcoming availability of vaccines may spur optimism and trim the need for further stimulus.
“We are seeing the other side of the river, but there is a lot of work that still needs to be done,” Lagarde said Monday. “There is a lot of support that needs to be displayed and financing conditions that need to be kept favorable and conducive to investment in research and development by firms, in financing by banks and non-banks.”
Recalibration Pledge
Since the ECB’s last policy meeting at which Lagarde pledged to “recalibrate” its stimulus settings, officials have indicated a reluctance to cut interest rates. The deposit rate of minus 0.5% is already squeezing banks’ profitability and the concwrns are that further reductions would be counterproductive.
Instead, policy makers are citing the previous success of the asset-purchase and targeted lending program -- known as TLTROs -- as reason to continue with their use.
“In order to face the second wave of the pandemic, the recalibration of monetary policy instruments should include, at the very least, the use once again of our emergency bond buying program, and our long-term refinancing operations,” said Hernandez de Cos.
The Bundesbank said Monday that Germany, the single currency’s largest economy, could stagnate or even shrink in the final quarter, thoughj the hit will be smaller than that suffered during the first lockdown earlier in the year.
De Guindos said in an interview on Italy’s SkyTG24 that the asset -urchase and loan tools were the two fundamental ones to be reviewed in December. Mersch said separately that the existing toolkit had served the central bank well.
The toolbox “was diversified, it was able to be calibrated to different situations, to changing circumstances and, if needed, able to evolve,” he said in a webinar. “We will continue in the same spirit to try to live up to our responsibilities and in the present crisis don’t forget that the toolbox that we have extended was the PEPP and the TLTRO.”
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