ECB leaves monetary policy unchanged despite pandemic
The European Central Bank announced that it would leave its main refinancing rate at 0%, where it has been since March 2016, and its deposit rate at -0.5%. The central bank also confirmed its forward guidance on interest rates, saying that they would remain at current levels or lower until inflation returns to “below, but close to, 2%.”
The Pandemic Emergency Purchase Programme (PEPP), launched in March in order to protect the euro zone against the economic repercussions of the pandemic, was kept at €1,350bn and will continue until at least June 2021. The ECB reiterated that it would reinvest the proceeds of its maturing bonds acquired under this programme at least till the end of 2022.
The amount of its quantitative easing (QE) programme, which resumed on 1 November 2019 and initially had a purchasing volume of €20bn of assets each month, will continue to have an additional package of €120bn for the rest of 2020. The programme will continue as long as necessary to reinforce the accommodative impact of interest-rate policy and will end shortly before the first interest-rate hike, the ECB said in its press release.
The ECB once again stressed that it planned to reinvest all bonds maturing acquired under QE, for an extended period after the first interest-rate hike.
New easing expected in December
The status quo announced on Thursday was quite expected by investors, but they will nonetheless be keeping a close eye on the reaction of the ECB president, Christine Lagarde, to the worsening of the pandemic and restrictions announced in many European countries, beginning with France and Germany.
Most economists expect a new easing in the ECB’s policy, including an expansion in PEPP amounts and, perhaps, an extension of the programme, after the 10 December meeting.
“There will then be lost of information available on pandemic trends and the impact of the recent series of restrictions, and ECB teams will have updated their macroeconomic projections, including the release of initial growth and inflation forecasts for 2023,” Jim Reid, a Deutsche Bank strategist, explained.