By Laurie Laird
LONDON (MaceNews) – The European Central Bank left all policy instruments on hold at its latest rate-setting meeting, stressing the ECB’s most recent economic projections envisioned the risk of the strong Covid containment measures currently in place through much of Europe.
Forecasts published in December “were predicated on lockdowns lasting through”the first quarter and “are still broadly valid,” said ECB President Christine Lagarde, addressing reporters following the Bank’s latest Governing Council meeting Thursday.
Economic shutdowns caused a “contraction in Q4 …and will have a bearing on the first quarter of 2021,” she added. The ECB sees growth falling by 7.3% over 2020 before recovering by 3.9% this year. A preliminary flash estimate of Q4 and full-year GDP data is due on 2 February.
While Lagarde stressed that economic risks are “still clearly tilted to the downside,” the completion of a trade deal between the UK and the European Union at the end of last month limited some of the uncertainty contained in the December forecast, which assumed a no-deal Brexit and a move to trading on WTO terms, she said.
The Bank made no change to its €1.85 trillion Pandemic Asset Purchase Programme, after expanding the scheme by €500 billion in December and stretching its time frame by nine months to the end of March 2022.
However, the Governing Council conceded that PEPP acquisitions may not exhaust the allocation, in line with similar comments by Lagarde earlier this week. “If favourable financing conditions can be maintained …the envelope need not be used in full,” according to a statement released following the meeting.
Lagarde denied such language amounted to a hawkish turn by the council, stressing that the minutes also allow for the PEPP envelope to “be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.”
The ECB president had little to say about the persistent strength of the euro, repeating only that “we are monitoring very carefully exchange rates.” The euro briefly touched $1.2168 following Lagarde’s comments, before retreating to $1.2149, up just short of 0.4% on the day. The euro appreciated by more than 9% against the dollar in 2020.
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Contact this reporter: laurie@macenews.com
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