The European Central Bank (ECB) will focus on emergency bond purchases and cheap loans for banks when it puts together its new stimulus package for the coronavirus-hit eurozone economy, president Christine Lagarde said.
Lagarde told the ECB’s annual central banking conference that inflation in the eurozone was now likely to remain negative for longer than expected as a second wave of Covid-19 infections forces fresh restrictions.
The ECB’s job was to keep borrowing costs sufficiently low for households, firms and governments and support the banking sector to prevent a credit crunch, she said.
Lagarde pointed to the bank’s Pandemic Emergency Purchase Programme and Targeted Longer-Term Refinancing Operations as its instruments of choice for tackling the issue.
“While all options are on the table, the PEPP and TLTROs have proven their effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves,” Lagarde told the symposium.
“They are therefore likely to remain the main tools for adjusting our monetary policy.”
The central banker hinted that the ECB could extend both policies significantly, emphasising “the duration of policy support” to ensure all parts of the economy would count on financing conditions remaining “exceptionally favorable”.
The ECB president also poured cold water on investor optimism about a new coronavirus vaccine after pharmaceutical giant Pfizer announced on Monday that its experimental vaccine was found to be over 90 per cent effective in an initial trial.
“While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved,” Lagarde said.