— Rate on Hold After Latest Governing Council Meeting
By Laurie Laird
LONDON (MaceNews) – The European Central Bank discussed the recent appreciation of the single currency at its latest governing council meeting, but declined to specify the risks of sustained euro strength to the nascent economic recovery.
The governing council made a rare passing reference to the “appreciation of the euro exchange rate” in a statement released after its meeting Thursday
Under persistent questioning from reporters, ECB President Christine Lagarde conceded that the council must “carefully monitor” the euro exchange rate which remains an “important determinant of price setting in the euro area.”
However, the Lagarde refused to be drawn further, stressing that the ECB does not target exchange rates. The euro has surged by more than 10% against the U.S. dollar since economic lockdowns took effect in March, rising another 0.8% on Thursday to just under $1.19.
Lagarde’s attempts to downplay euro strength contrast greatly with the Bank’s stance in early 2018, when the euro spiked above $1.24. A statement following a governing council meeting in January of that year referred to the “recent volatility in the exchange rate …. and possible implications for price stability.”
The ECB upgraded its estimate for economic growth in 2020, forecasting an 8.0% contraction over the calendar year, a bit better than the 8.7% fall expected back in June. That’s despite Lagarde’s warning that the service sector recovery has faltered in recent months, even as industrial production has “continued to improve.”
That forecast is subject to downside risk, with the economic outlook dependent on the “evolution of the pandemic,” she added.
ECB economists confirmed the inflation forecast at 0.3% in 2020, matching the June forecast, despite a fall in the euro zone’s benchmark inflation index to -0.2% in August. Despite declining prices, Lagarde insisted that “deflationary risks have receded.”
The ECB left its main benchmarks unchanged, with the deposit facility rate remaining at -0.5%. The ECB has not reduced rates since the start of the Covid-induced economic shock, but Lagarde refused to rule out further rate cuts.
The Bank also refrained from adjusting its asset purchase programmes. The Pandemic Emergency Purchase Programme will continue at least until the end of June 2021, at a total size of €1.35 billion. Net purchases under the Asset Purchase Programme will continue at a monthly pace of €20 billion “for as long as necessary,” said Lagarde, adding that the governing council did not discuss any changes to the PEPP programme.
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Contact this reporter: laurie@macenews.com.
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