ECB is not expanding its aid to the economy for the time being

D.he European Central Bank is sticking to its loose monetary policy amid the second wave of pandemics and new restrictions on economic life in many countries. The monetary watchdog around central bank chief Christine Lagarde decided at their interest rate meeting on Thursday no major new aid programs for the economy. Only the new economic forecasts expected by their economists in December would enable a more precise assessment of the economic outlook. On this basis, it will adapt its instruments if necessary in order to react to developments. The central bank left the key interest rate at a record low of zero percent, where it has been since March 2016.

In the course of the massive economic slump as a result of the Corona crisis, the central bank had already initiated extensive support measures. Among other things, in June it increased its large pandemic bond purchase program PEPP by 600 billion euros to 1.35 trillion euros and extended the purchases until at least the end of June 2021. Most economists expect the central bank to increase the purchase volume again by the end of the year the purchases extended until the end of 2021.

Many governments in the euro area, including Germany and France, the two largest economies, have once again decided to severely restrict public life due to the sharp rise in the number of infections. There are therefore concerns that the economic recovery will now be slowed down again after the crash in the second quarter. It is expected that ECB President Lagarde will comment on the economic and inflation outlook in the afternoon. Many economists are expecting a signal that new support measures may soon come.

The central bank did not change the penalty interest rates for banks either. The deposit rate is as before at minus 0.5 percent. A negative sentence means that money houses have to pay interest if they hoard surplus funds at the central bank. However, in autumn 2019 the ECB decided to make it easier for the financial institutions. It now grants a certain amount of exemptions from penalty interest.

“Today’s monetary policy decision brought no surprises, the ECB is sticking to its monetary policy course for the time being. However, the emphasis is clearly on the word ‘for the time being’, said Uwe Burkert, chief economist at LBBW. that an adjustment of monetary policy is likely at the final meeting of the year in December: First, they emphasized the downside risks by adding ‘significantly’ more than in September. Second, they explicitly pointed out that a recalibration of monetary policy based on the December publishing staff projections. “

“The ECB is initially waiting to see how much economic damage the second corona wave will cause. It also currently has enough ammunition due to the high volumes available in the PEPP bond purchase program. Simply increasing the PEPP should hardly be enough, because long-term interest rates and spreads can hardly fall any lower. Instruments should therefore be discussed that have not yet played a role in the euro zone, such as ECB purchases of equity funds, “says Friedrich Heinemann from the ZEW Institute.


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