The European Central Bank (ECB) has ramped up its bond-buying programme by €500bn (£456bn) in an effort to limit the economic damage from rising coronavirus cases and new restrictions across the continent.
ECB governor Christine Lagarde said the central bank expects the Eurozone economy to have contracted in the final quarter of the year. She said the area’s economy would likely grow 3.9 per cent next year – down from an earlier forecast of five per cent – after a record 7.3 per cent contraction this year.
The central bank’s latest round of stimulus comes as European countries attempt to reduce coronavirus cases amid a second wave.
France could be forced to delay the easing of its lockdown measures as cases are still high. German chancellor Angela Merkel has backed tougher restrictions as infections rise in the country.
The ECB increased its pandemic emergency purchase program by €500bn to €1.85 trillion. And it extended it to at least the end of March 2022.
It also announced a series of auctions that will allow banks to borrow extremely cheaply, with rates as low as minus one per cent, so long as they keep lending to the wider economy. They will run until the end of next year.
The central bank also unveiled various other technical crisis-fighting measures. They included extending the easing of collateral rules to take pressure off lenders, and raising the amount banks can borrow.
Lagarde said the short-term outlook for the Eurozone economy remained challenging, despite positive vaccine news.
“While the rebound of the economic activity in the third quarter was stronger than expected and the prospect for the rollout of vaccines are encouraging, the pandemic continues to pose serious risks to public health and to the euro area and global economies,” she said at the press conference following the decision.
“Actual and expected job and income losses and the exceptionally elevated uncertainty about the evolution of the pandemic and the economic outlook continue to weigh on consumer spending and on business investment.”