Christine Lagarde, President of the European Central Bank.
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The European Central Bank hinted on Thursday that it will introduce more monetary stimulus measures as the two largest economies in the region are preparing for a second national lockdown.
The bank decided to keep its interest rates and broader monetary policy unchanged, but suggested that further euro zone policy actions may be taken as soon as possible in December.
The European Central Bank said in a statement on Thursday: “The Board of Governors will carefully evaluate incoming information, including the dynamics of the pandemic, prospects for the launch of vaccines and exchange rate developments.
It said that the December New Economic Forecast “will allow a thorough reassessment of the economy and risks.”
The bank added: “Based on the latest assessment, the Board will re-adjust its tools as appropriate to respond to the evolving situation.”
In September, the European Central Bank estimated that the euro zone’s GDP contracted by 8% this year, followed by a 5% rebound in 2021. In terms of overall inflation, it forecasts 0.3% in 2020 and then increases to 1% in 2021. But the agency led by Christine Lagarde will update these forecasts in December.
The latest statement from the European Central Bank indicates that policymakers will adjust their monetary policy based on upcoming forecasts.
Carsten Brzeski, head of ING’s global macroeconomics, said in a report: “The door to action in December is open. We hope that the situation will not deteriorate further, so that the European Central Bank must be ahead of schedule. Rush into the door.”
Take no action for now
Thursday’s decision means that the European Central Bank’s main refinancing business, marginal lending instruments and deposit instrument interest rates are maintained at 0%, 0.25% and -0.5%, respectively. In addition, the Pandemic Emergency Procurement Plan (PEPP) created after the coronavirus outbreak remains unchanged.
Following this, the Eurozone’s battle with the rapid increase in the number of Covid-19 infections has led some governments to implement new restrictions.
French President Emmanuel Macron announced a second nationwide lockdown on Wednesday, although schools and factories will remain open.Germany announced on Wednesday Starting next week, restaurants, bars and public events will be “lightly blocked”.
The second wave of infections may bring a new blow to the euro zone economy, which is expected to rebound in the second half of 2020. Preliminary data released last week showed that under the new social restrictions, business activity in the euro zone shrank in October. However, if the government continues to take other measures, the situation is expected to deteriorate.
Another problem facing the European Central Bank is the strength of the euro, which has appreciated by nearly 5% against the dollar since the beginning of the year. The central bank said at the September meeting that it discussed the issue of the appreciation of the euro, but emphasized that its policy did not target the exchange rate. The strengthening of the euro is often seen as a problem for the European economy. Given the Eurozone’s dependence on its exports.
This is a major news and is being updated.