As virus risks rise, the ECB pledges to provide more patient support.
Christine Lagarde, the head of the European Central Bank, warned on Thursday of growing economic “uncertainty” caused by the fast-spreading Delta strain of the coronavirus, as the bank committed to keep eurozone support in place for longer.
Lagarde stated, “The euro area economy is rebounding strongly.”
“However, the epidemic continues to throw a pall over the situation, particularly because the Delta variety is becoming an increasing source of uncertainty.”
The highly contagious strain, which has prompted additional restrictions in a number of nations, might stymie the recovery “in services, particularly tourism and hospitality,” she noted.
Lagarde said the ECB will support the 19-nation currency union through the health crisis with “patience,” implying that key interest rates would remain low for longer.
The ECB’s 25-member governing council met for the first time on Thursday since the bank announced a new two-percentage-point inflation target, replacing the old goal of “close to but below two percent.”
The ECB stated rates would remain at record-low and even negative levels until inflation is judged as “durably” reaching the new target in a redesigned “forward guidance” statement given after the meeting, which was extensively scrutinized by markets for signals on future policy movements.
Governors also left their 1.85 trillion euro ($2.2 trillion) pandemic emergency bond-purchasing plan (PEPP), the bank’s primary instrument for mitigating the virus’s impact, unchanged.
The European Central Bank’s ultra-loose monetary policy aims to keep borrowing cheap throughout the eurozone in order to boost consumption and investment.
The ECB’s “determination to maintain a continuously accommodating monetary policy stance,” according to Lagarde, was underscored by the “easier to grasp” new advice.
However, ING bank economist Carsten Brzeski was disappointed, describing the ECB’s new phrasing as “old wine in new bottles.”
The ECB governors are split on whether to start weaning the eurozone off of its enormous stimulus package.
Concerns about the rise in coronavirus infections appear to have put a halt to the debate, with Lagarde noting that “none of us would want to tighten prematurely” and jeopardize the recovery.
The PEPP purchases will last until the end of March 2022, or until the ECB “judges that the coronavirus crisis period is over,” she said.
After a period of relatively low numbers, German Chancellor Angela Merkel warned of “exponential growth” in Covid-19 infections, allowing the country to relax restrictions on hotels, restaurants, shops, and other enterprises.
Lagarde was grilled at her news conference about the bank’s new inflation objective, which she defined as a more “simple” and “symmetric” goal, meaning the. Brief News from Washington Newsday.