The European Central Bank (ECB) has announced an expansion of its huge money-printing program by hundreds of billions of euros, an attempt to “prop up the economy” as another wave of coronavirus rips through the region and threatens to disrupt its recovery.
The central bank said in a statement that it would increase its asset purchases by €500 billion ($605 billion), bringing the total stimulus program to €1.85 trillion ($2.24 trillion). It also plans to extend purchases to at least the end of March 2022 and grant more subsidized loans to banks to stimulate lending.
“The monetary policy measures taken today will contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability,” the statement said.
During an interaction with the press, ECB President, Christine Lagarde said that the pandemic continues to pose “serious risks” to European economies and that renewed lockdowns heighten the risk of a delayed recovery.
She added that while manufacturing is holding up well, services activity has been “severely curbed” by an increase in infection rates and new restrictions,
“An ample degree of monetary accommodation is necessary to support economic activity,” she said.
- Europe’s Economic Sentiment Drop in November
- The European economy to contract by 7 percent in 2020 – IMF
The ECB also indicated that “uncertainty remains high” with regards to the development of the pandemic and the timing of vaccine distribution, and as such, the bank stands ready to adjust its tools to ensure inflation, which is currently in negative territory, moves towards its 2% target.
The bank left its deposit rate unchanged at minus 0.5% and Lagarde said she expects interest rates to remain at current or lower levels until the inflation outlook improves.
“While the main policy changes announced today were largely as expected, they underline the ECB’s commitment to using its balance sheet well beyond the end of the health emergency in order to keep bond yields exceptionally low,” added Andrew Kenningham, Chief Europe Economist at Capital Economics.
This is the second time that the ECB has expanded its Pandemic Emergency Purchase Program (PEPP), which it rolled out in the spring as the coronavirus swept across Europe and governments had to result to tight restrictions which had adverse impact economic activity. In June, it increased the size of the program by €600 billion ($726 billion).
Despite a record rebound in the third quarter, the EU economy remained 4.2% smaller than its September 2019 level, according to statistics agency Eurostat. Europe is now battling another surge in coronavirus cases, prompting fresh lockdowns in major economies such as Germany, France and Italy. The GDP is expected to contract again in the fourth quarter as a consequence.
“The second wave of the pandemic and the associated intensification of containment measures are expected to result in a renewed significant decline in activity in the fourth quarter, although to a lesser extent than the second quarter,” Lagarde said.
She also stressed the importance of the recovery fund becoming operational “without delay” and called on EU member countries to deploy the funds for “productive public spending.”
