Early Monday morning, ECB president Christine Lagarde confirmed again that the European Central Bank remains generally helpless to boost growth in a world in which it unleashed negative rates, sending European banks to all time lows last week, and where the second wave of COVID 19 cases means the ECB has no visibility into the future:
Some of the key talking points from the meeting where:
- “Businesses are facing difficulties, people are losing their jobs, and prospects about the future remain uncertain,” European Central Bank President Christine Lagarde says in European Parliament, adding that the ECB “will carefully assess all incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook”
- “[The ECB] continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry”
- Strength of the recovery remains “highly dependent on the evolution of the COVID-19 pandemic and the success of containment policies. The public health crisis will continue to weigh on economic activity and poses downside risks to the economic outlook”
- Declines in energy prices, a stronger euro, temporary reduction in the value- added tax rate in Germany will weigh on inflation in the coming months
There also was word of dissent amongst ECB officials, as arguments are starting to proliferate over whether to add more monetary support soon to head off any economic slowdown, or wait for stronger evidence to show if it’s needed.
Chief Economist Philip Lane, who has suggested more must be done to revive inflation even if the worst of the economic crisis has passed. He said on Twitter last week that “ample” stimulus is still required. Yet, Lane’s colleague Yves Mersch, a member of the Executive Board with the ECB, said in a Bloomberg interview that the downside risks have lessened and he sees no deterioration in output or prices (i.e. “opposite” of monetary easing).
The ECB is entering in a complicated and stressful phase in its crisis response, with financial markets stabilizing and the economy beginning to grow again . However, the rebound has been uneven (North vs. South) and inflation is below zero.
Most economists predict the pandemic program will be expanded this year, probably in December when new economic projections are published
The inflation rate is below zero for the first time in four years, and isn’t expected to return to the goal of “below, but close, to 2%” for a long time. Even that target is being reassessed, following in the footsteps of the Federal Reserve’s strategic review, who announced last week that they will pursue a goal of bolstering the labor market while putting less emphasis on keeping inflation in check.
Stay tuned…
Works Cited:
https://www.zerohedge.com/markets/lagarde-faces-new-ecb-revolt-hawks-doves-feud-over-virus-response
https://ca.finance.yahoo.com/news/ecb-officials-prepare-clash-clans-040010596.html