European Central Bank left its key interest rates and massive stimulus unchanged on Thursday, citing a highly uncertain outlook amid a resurgence in the Covid-19 pandemic, and hinted at a move in December when the latest set of macroeconomic projections will be available.
The Governing Council, led by ECB President Christine Lagarde, left the main refi rate unchanged at a record low zero percent and the deposit rate was kept at -0.50 percent, in line with economists’ expectations. The lending rate was left unchanged at 0.25 percent.
The bank made changes to its policy statement this time and had a fresh introductory paragraph.
Policymakers will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a roll-out of vaccines and developments in the euro exchange rate as the risks remain clearly tilted to the downside, the bank said.
“The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks,” the ECB said.
“On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path.”
A new wave of coronavirus infections in the euro area has raised the prospect of further disruption to economic activity and normal life. On Thursday, Germany and France announced lockdowns.
“The door for December action is wide open,” ING economist Carsten Brzeski said.
“Let’s hope that the situation doesn’t worsen further so that the ECB has to rush through the door earlier than planned.”
Reiterating its forward guidance on interest rates, the bank said it expects the key ECB interest rates to remain at their present or lower levels until the inflation outlook robustly converge to a level sufficiently close to, but below, 2 percent within its projection horizon.
The size of the pandemic emergency purchase programme (PEPP) was left unchanged at EUR 1,350 billion.
The ECB retained the forward guidance on its stimulus measures such as asset purchases and lending operations.
Asset purchases under the PEPP will continue until at least the end of June 2021 or when policymakers assess that the coronavirus crisis is over, the ECB said.
The future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance, the central bank added.
Further, the bank said the net purchases under the asset purchase programme (APP) will continue at a monthly pace of EUR 20 billion, together with the purchases under the additional EUR 120 billion temporary envelope until the end of the year.
Policymakers continue to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before they start raising the key ECB interest rates.
The Governing Council will also continue to provide ample liquidity through its refinancing operations, the bank said.
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