The Governing Council of the European Central Bank (ECB) continues to pursue a very accommodating monetary policy, characterised in particular by the PEPP operation involving the massive repurchase of securities, the massive injection of liquidity into the banking sector and very low or even negative key rates.
“ Ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium-term price stability. Therefore, we decided to reconfirm our accommodative monetary policy stance”, said ECB President Christine Lagarde on Thursday, September 10.
Taking stock of the economic situation in the euro area since the last Governing Council meeting of the ECB in July (see EUROPE 12529/6), she reported a “strong rebound”, in activity in the wake of the relaxation of confinement measures, “although the level of activity remains well below the levels prevailing before the coronavirus (Covid-19) pandemic” and the medium-term horizon remains marked by “ significant uncertainty”.
Nevertheless, the ECB has revised upwards its growth projections for 2020. According to her, the economic recession this year will be -8% of GDP (against -8.7% in June) and the recovery will reach 5.0% in 2021 and 3.2% in 2022.
On the inflation front, low energy and consumer prices as well as the temporary reduction of the VAT in Germany are having a downward impact. The ECB is forecasting “negative inflation for the next few months” and then “positive again in early 2021”, Lagarde said. Thus, she estimates that inflation will rise to 0.3% in 2020, 1.0% in 2021 and 1.3% in 2022.
On the PEPP operation, the former IMF boss recalled that the purchases, as part of the package increased to €1,350 billion in June, will continue “to be conducted in a flexible manner over time, across asset classes and among jurisdictions” in order to ensure that the effects of the ECB’s monetary policy were felt throughout the euro area. In any event, the operation will last “until at least the end of June 2021”, until the Governing Council judges that “the coronavirus crisis phase is over”.
But Mrs Lagarde did not mention the possibility of increasing its firepower in the future, in light of future public debt issues. She nevertheless indicated that the European System of Central Banks could buy, via the PEPP operation, debt securities that the European Commission will issue on behalf of the EU27 to finance the European Recovery Plan.
Finally, on the appreciation of the single currency against the dollar, the President of the ECB said that the institute was monitoring such developments, even though the euro exchange rate is not in itself a monetary policy objective. (Original version in French by Mathieu Bion)